Set A

1. The number of owners composing a partnership is limited to two natural persons only.
2. Additional investments by the partners should be credited to the partner’s capital account.
3. A partnership cannot be established for charity.
4. One of the partners in a proposed partnership is very rich. This partner can be excluded from
the sharing in the profits of the partnership.
5. If part of the partnership’s contribution to the partnership is a personal property, the
partnership contract should be in writing.
6. Limited partnerships always have a general partner whose liability is unlimited.
7. Every partner is assumed to be an agent of partnership.
8. In general partnership, the general partner's liability is limited to his or her investment.
9. Partner's withdrawals are recorded individually in the book of accounts while stockholder’s
withdrawals are not.
10. All kinds of partnership must obtain formal permission from the government before starting.
11. Non-cash assets contributed by the partners should be recorded in the partnership books at
their fair market value.
12. The partner’s ownership in the partnership assets is always in the same proportion to their
share in partnership’s profit and losses.
13. The maximum number of owners composing a partnership must be four natural persons.
14. Services may also be contributed in a partnership.
15. As long as the action is within is within the scope of the authorization, any partner can bind the
partnership.
16. The partners co -own the assets of partnership.
17. A partner who invests assets into partnership retains ownership over those specific assets.
18. All partnership have limited life and its assets are co-owned by the partners.
19. A partnership has said to have limited life because any change in the relationship of the partners
dissolves it.
20. Two accounts are maintained for every partner, a drawing account and a capital amount.

Set B

21. All partnerships should have at least one general partner.

22. The memorandum entry is without a debit and credit.
23. All partners are personally liable for the debts of the partnership.
24. A silent partner is not known as a partner and does not take an active part in partnership
operations.
25. Partner’s contribution to the partnership’s total capitalization should always be equal.
26. The amount of capital contribution by the partners is based on their agreement.
27. The association for rendering professional services like accounting firms could be in the form of
corporation.
28. Two or more persons may form a partnership for the exercise of a profession like law firms.
29. A stipulation of a partnership contract excluding a partner from a profit sharing is null and void.
30. The sharing of profit and loss is usually arrived at by mutual consent of the partners.
31. Bankruptcy of a partner will not dissolve a partnership.
 32. The essence of partnership is that each partner must share in the profits or losses of the
business.
33. In closing the books of a sole proprietor which was converted into a partnership, the closing
entries will not include those of real accounts.
34. General partnership is composed of limited and general partners.
35. Aa partner’s drawing account normally have credit balances.
36. To record the acceptance of a industrial partner, the partnership prepares a memorandum
entry.
37. A secret partner is known by others as a partner in the partnership business, but he does not
take an active part in running the affair of the partnership.
38. In converting two existing sole proprietorship business into a partnership, any agreed
adjustments on the value of the assets of the sole proprietorship should accrue to the benefit of
the sole owner and not to the partnership.
39. The agreement to form a partnership is perfected by mere consent of the parties.
40. A partnership agreement should always be in writing.

Set C

41. Individual partners are solidarily liable for the debts and obligations of a partnership.
42. A limited partnership has normally one or more general partners whose liability is unlimited.
43. In every limited partnership, the general partner’s liability is limited to his investment.
44. In a limited partnership, none of the partners has unlimited liability.
45. The limited partners ae liable only to the extent of their personal contributions.
46. A partnership is dissolved when a new partner is admitted, but not when a partner retires from
the business.
47. The partner’s capital account is a nominal account.
48. A partner’s deficit account has a debit balance.
49. A de jure partnership is established and organized in accordance with all the legal requirements
for its existence.
50. Every partnership involves mutual agency, unlimited liability for general partners and limited
life.
51. Mutual agency means that each partner has the right to bind partnership to contracts or
transactions.
52. As long as the action is within the scope of his authorization, any partner can bind the
partnership.
53. There can be a partnership without contribution of money, property or industry to a common
fund.
54. A partnership does not have a juridical personality separate and distinct from that of each
partner.
55. The drawing account is credited with the partner’s withdrawals during the period.
56. The partner investing a particular kind of asset retains his personal ownership to the said
property. He may receive back the same property if the partnership is liquidated.
57. Under the bonus method of recording the initial investments of the partners, the total capital
contributed by the partners should be equal to the total agreed contributions.
 58. If the “loans to and from a partner” has a credit balance, it means that the partner has a liability
to the partnership.
59. Partnership with capitalization of below 5,000 need not be in writing.
60. Generally, partnerships can generate larger amounts of capital as compared to sole
proprietorships.

Set D

61. In a contract of a partnership, two or more persons bind themselves to contribute money,
property, or industry to a common fund, with the intention of dividing the profit and losses
among themselves.
62. An oral agreement is sufficient to bind the partners.
63. A written partnership agreement is usually made to avoid potential problems during the
operation of partnership business.
64. A sole proprietorship has a limited life whereas a partnership may have an unlimited life.
65. A partnership agreement should include the procedure terminating the business.
66. A capitalist-industrial partner in a general partnership is not liable for the partner’s debts to the
extent of his personal assets.
67. Partner’s capital is one of the basic accounting elements of partnership business.
68. In the basic accounting equation, the partner’s capital is equal to the net asset of the business.
69. Income tax is levied on the individual partner’s share in the net income of general professional
partnership.
70. Upon termination of the legal life of the partnership, it may not continue its normal activities
under the same business name.
71. There is no income tax imposed on all kinds of partnerships.
72. Ownership can be easily transferred in a partnership.
73. All limited partnerships must have at least one general partner.
74. All partners in a general partnership are personally liable for all liabilities incurred by the
partnership.
75. The managing partner’s agreed salary is debited directly to the partner's capital account
76. The balance in capital accounts represents the partner's share in the net assets of the
partnership.
77. A partnership by estoppel is one who is actually not a partner but who represents himself as
one.
78. A partnership is created by mere agreement of the partners.
79. A partnership and a corporation cannot form another partnership.
80. A partnership agreement should always be in writing.

Set E

81. The basis valuation for non-cash investments should be its historical cost.
82. Every partnership must always have two or more owners.
83. An advantage of the partnership form of business in that each partner's potential loss is limited
to the partnership’s investment in the partnership.
84. The manner in which profits and losses are to be shared should be disclosed in the Articles of
Co-Partnership.
 85. When a partner invests assets in a partnership, the assets are recorded at their old book values.
86. Liabilities related to assets invested in a partnership by a new partner cannot be assumed by the
partnership.
87. A partner's capital account is debited to record assets permanently withdrawn.
88. Adjustments before the formation may be omitted since these will not affect the partner's
capital account.
89. Assets invested in the partnership should be recorded at their cost in the partner’s old books.
90. One disadvantage of a partnership over a corporate form of organization is the unlimited
liability of the partners.
91. Accounting for a partnership comes closer to accounting for sole proprietorship than to
accounting for a corporation.
92. A partner retains ownership to assets contributed to a partnership.
93. Not all of the partners in a general partnership are personally liable for all debts incurred by the
partnership.
94. All kinds of partnerships are subject to the normal corporate income tax of 30%.
95. A de facto partnership is one which has complied with all the legal requirements for its
establishment.
96. When the partners invest assets other than cash in a partnership, their capital accounts should
be credited with the current fair market values of the assets.
97. One of the advantages of a partnership is the freedom and flexibility of partner’s actions when it
comes to decision making.
98. One of the advantage of a partnership is that it enables pooling of resources and talents among
partners.
99. A dormant partner is one who does not take active part in the partnership operation though
may be known as a partner by third persons.
100. A private instruments need to be executed when immovable property are contributed
to the partnership.

MULTIPLE CHOICE

Set A

1. What is a business organization that is not usually subject to a separate income tax?
a. Single Proprietorship
b. Partnership
c. Corporation
d. Cooperative
2. A partnership is
—An association of two or more persons to carry on a business for a profit as co-owners.
3. It is the ability of the partner to enter into a contract on behalf of other partners
—Mutual agency
4. He is the partner who only contributes his work to the common fund of the partnership.
—Industrial Partner
5. Which type of partner does not have unlimited liability.
 —Limited Partners
6. Upon the formation of the partnership, each partner’s initial investment of non-cash should be
recorded at their
—Market values
7. When is the partner’s capital debited?
—Closing drawing account at the end of the period.
8. The primary reason why an Article of Co-Partnership should not be kept secret among the
partners is the principle of
—Mutual trust and fidelity
9. A partner acting within the scope of his authority, may bind the partnership is termed as
—Mutual agency
10. The best evidence of the relationship of the partnership is the
—Articles of Co-Partnership
11. Basyang and Enteng entered formed a partnership, each contributing assets to he business. B
contributed merchandise inventory with a current market value in excess of its cost. E
contributed building with a cost in excess of its current market value. At what amount should
the partnership record each of the following assets?
— M. Inv Building
Market Value Market Value
12. It is the concept which states that the business is separate and distinct from the owners.
—Business Entity theory
13. When a partner invests assets other than cash into a partnership, these assets should be
recorded on the balance sheet as?
—Fair market value
14. All of the following are true except for both general and limited partnerships except.
—Both are easily dissolved.
15. Which of the following does not dissolve a partnership?
—None of the above
16. What is the entry to record the acceptance of an industrial partner to the partnership? Where
should it be reflected?
—General journal through memo entry
17. The partner’s capital account is credited when there is a/n
—Original investment, additional investment, net income for the period
18. In a limited partnership,
—all but the general partnership have limited liability
19. Non-cash assets invested into a partnership are recorded at
— Market value
20. A partner invested into a partnership a land with a 250,000 carrying value and 400,00 fair
market value. The related mortgage payable of 125,000 was assumed by the partnership. As a
result of the investment, the partner's capital account will be credited for
—275,000 = 400,000 – 125,000

Set B
21. A large cash withdrawal by Jacob is viewed by the other partner as a permanent reduction of
his ownership equity is recorded with a debit to
—Jacob, Capital
22. Which of the following is not a characteristic of a partnership?
—Unlimited life
23. All of the following are applicable to both general and limited partnerships except
—All partners are liable for all the debts of the firm
24. Which of the following is not a characteristic of partnerships?
—Limited liability of partners
25. Which of these characteristics does not apply to a general professional partnership like law
firms?
—unlimited life
26. At what value will cash contributions of a partner be recorded in the partnership books
—actual amount of cash
27. What is the proper valuation if a partner contributes a noncash property in the partnership?
—agreed fair value of the property
28. On July 1, 2013, Ethan and Emily formed a partnership. Ethan contributed cash. Emily
contributed land subject to a mortgage and was assumed by the partnership. Emily's capital
account at July 31, 2013 should increase by
—the fair value of the property less the mortgage at July 31, 2013.
29. Which of the following is not a characteristic of a partnership?
—limited liability of partners
30. Which of the following statement is wrong?
—A partnership cannot be formed by partners with profession different from each other.
31. Which of the following partnerships was organized in compliance with all the legal requirements
of the SEC?
—De Jure Partnership
32. One who takes charge of the winding up of partnership affairs on dissolution:
—liquidating partner
33. Which of the following would be an advantage of the partnership?
—A partnership is created by mere agreement of the partners
34. The life of a partnership ends when
—A new partner is admitted to the partnership.
35. Which of the following items is not collectible from a partner?
—loans from a partner
36. What is the basis of initial investments if the partners do not have an agreement as to the
amount of capital contributions?
—fair value of assets contributed
37. What do you call a partner who is appointed to sell and distribute the assets of the after its
dissolution?
—liquidating partner
38. Which of the following will not be seen on an Article of Co-Partnership?
—Kinds of creditors
 39. Two sole proprietors formed a partnership. Non-cash assets forming part of the initial. —
investment in the partnership would be recorded at the fair value of the property at the date of
the investment
40. A partner whose liability for partnership debts is limited to his capital investment is called
—limited partnership

Set C

41. —
42. The advantages of the partnership do not include
—Unlimited liability
43. The capital balance of the partners would be affected by
—initial investment, additional investments, share in profit
44. Partner’s investments may include which of the following
—services or industry, non-cash assets, non-cash assets with liabilities to be assumed.
45. Which of the following can be classified as an asset account?
—prepaid supplies
46. Which among the following has a normal credit balance?
—partner's capital
47. The drawing account of a partner is debited, except for
—partnership’s obligation paid by the partner
48. Which of the following is directly debited to capital account of a partner?
—permanent withdrawal of the capital
49. The partner’s capital account is credited except when
—there is a debit balance of the drawing account at the end of the accounting period.
50. A partner will not bind the partnership when the
—partner was not authorized by the other partners to make the purchase.
51. Which of the following is a characteristic of a partnership
—mutual contribution
52. Which of the following partnership is an advantage?
—ease of formation
53. When a non cash asset is invested in the partnership and its book value and fair values are
available, its valuation would be
—the fair value of the asset of the asset at the time of investment.
54. Account used when the partner borrows from the assets of the partnership:
—drawing
55. The partner’s drawing accounts are used:
—to record the partner’s share of net income or loss for an accounting period.
56. A partner’s drawing account is
—A contra-capital account
57. A partnership is an association of two or more persons who carry on as co-owners of a business
for profit. The person who form the partnership may be
—individuals only
58. A partnership is a/an:
—accounting and taxable entity
 59. Which of the following accounts can be found in the general ledger of JC AND TOLFA
Partnership?
—receivable from Rolfa, JC, Drawing, JC, Loan
60. A partnership records a partner’s investment of assets in the business at
—the market value of the assets invested.

PROBLEM SOLVING

P1-1

On June 1, 2013, the business assets of Joshua and Madison were summarized as follows:

Joshua Madison
Cash 11,000 22,354
Accounts Receivable 234,536. (20000) 567,890 (35,000)
Inventories 120,035 (5500) 260,102(6700)
Land 603,000
Building 428,267
Furniture 50,345 34,789
Other Assets 2,000 (2000) 3,600(3600)
Accounts Payable 178,940 243,650
Notes Payable 200,000 345,000
Joshua, Capital 641,976
Madison, Capital 728,352

Joshua and Madison agreed to form a partnership, contributing their respective assets and liabilities
subject to the following adjustments:

a. Inventories of 5,500 and 6,700 are already worthless in Joshua's and Madison's books
respectively
b. Other assets of 2,000 and 3,600 in the respective books of Joshua and Madison are to be written
off.
c. Accounts Receivable of 20,000 in Joshua's books and 35,000 in Madison's books are deemed
uncollectible.

Questions:

1. What would be the balance of capital account of Joshua after adjustment?

2. What would be the balance of the capital account of Madison after adjustment?
3. How much assets does the partnership have?