: ‘Quiz on Partnership Formation and Operation SN RY ew AT General Instructions: ERASURES ARE NOT ALLOWED. USE OF CORRECTION TAPE OR ERASABLE PEN IS ALSO NOT ALLOWED. Test I. True or False. Write the word TRUE if the statement correct and FALSE if the statement is ineorrect. (1 point each) Tn the partnership books, there are as many capital and drawing accounts as there are True 7 | partners. | True Each partner generally has the authority to enter into contracts which are binding upon | 1 * the partnership. | ace The property invested in a partnership by a partner becomes property of the True [4%] A partnership is always owned by at least two individuals. (5) | Partners are personally liable for the liabilities of the parinership ifthe partnership is False inable to pay. Fs | Net asset adjustments are made on a sole proprictor's books, when these are to be used pane partnership books, for the purpose of arriving at agreed values: False Al partnerships, just like corporations, are subject to income tax. Truc | B¢{ Profits and Tsses, in genera, sal be divided in accordance withthe agresment among the partners. True |, | The percentage interest in a partnership is always the same as the profit-sharing ratio. 10/| Tribe partnership agreement specifies @ method for sharing prois, But not losses, then pss losses are shared in the same proportion as profits. ‘Test Il. Matching Type. Write the letter that corresponds to your choice. (1 point each) “A [income Summary K [Industral Pariner U_| Copiatterrarner B___| Beginning Capital ‘L__| Partners” salaries V_[dadustey— ‘C_| Original Capital M_| Agreed Value ‘W_| Money. ‘D__| Limited Partner N | Market Value X_| Property_ E Distribution of Profit O Bonus— Y_| Asticles-of Co-Partnership F | Partnership P | Statement of Comprehensive | Z| By- laws Income | G_| General Partner Q _| Statement of Financial Position H Arbitrary ratio R ‘Statement of Changes-in Partners’ Equi I General Professional | S SEC Partnership Hi J jot T [BR e rn 1 4 A partnership agreement that provides for a combination of several allocation i re | procedures to be used in the distribution of; r 2;| The compensation given to partners for the ability and time devoted to the business. i >a) aa incentive given to the managing partner which is usually a percentage of net income. i 4 ‘4 ,| A ratio expressed in fraction or percentage which has no relation to the amount of i yital investment of the partners. | A temporary account used to summarize the various revenue and expenses, the balance of which may represent profit of loss. | A basic financial statement which gives effect to the changes in capital balances of the ‘partners during the specific period. Capital contributions of the partners at the commencement of the partnership. Up-Kenaty NalsiSel 3 Balances in the capital accounts of partners atthe start of each accounting period.‘Quiz on Partnership Formation and Operation . pat ‘A contract ‘whereby two or more persons bind themselves to contribule money, property, or industry to a common fund with the intention of dividing profits among ‘themselves. ‘The contribution of an industrial partner. ‘A partner who contributes money, property Partnerships which are exempt from income tax. LA partner whose liability is limited to the extent of her/his personal contribution into the partnership. 14 | The government body which is in charge with administration of various laws affecting ~ | paftnerships and corporations in the Philippines. ‘A written partnership contract which governs the formation, operation, and dissolution & | of the partnership. ae telce [a] <|GlolR[c |<] a Test III. Problem Solving. Write the final answer on the spaces provided and present your solution at the back ages of the questionnaire, (3 points each 2 points for the correct answer and 1 point for the solution.) Case 1. Evie and Leo are partners who agreed to share profits and losses in the following manner: Evie Leo ‘Annual salaries 261,000 | _P259,000, Interest on average capital 5% 10% ‘Bonus (based on net income after salaries and interest) 10% - ‘Remainder 50% 50% During the current year, the partnership's result of operation was P575,000 profit before any deduction. Evie and Leo’s average capital balances for the year are P600,000 and P300,000, respectively. s 1. How much is the total share of Leo in the net income for the current year? #286, CO. af ‘Case 2. The partnership of Lyka and Darren was formed on March 31, 2018. On this date, Lyka invested P50,000 cash and office equipment valued at P30,000. Darren invested P70,000 cash, merchandise valued at P100,000, and furniture valued at P100,000 subject to a notes payable of P50,000, which the partnership assumes. The partnership provides that Lyka and Darren share profits and losses 25:75, respectively. The agreement further provides that the partners should initially have an equal interest in the partnership capital. 2 2. The total capital of the partnership after the formation is ¥ 360 , C00 Case 3. Marvin, Jerwin and Grace formed a partnership on July 1, 2018 with the following investments: Marvin — 'P200,000; Jerwin - P300,000; and, Grace ~ P450,000. ‘The partnership agreement stated that profits and losses are to be shared equally by the partners after consideration for the following: ‘2. Annual salaries to partners: P60,000 for Marvin, P48,000 for Jerwin and P36,000 for Grace. D. 10% interest on average capital ©. 10% bonus after salaries and interest to Marvin as the managing partner. Additional information: a, On October 1, 2018, Marvin made additional investment of P60,000. b. Grace invested P30,000 on December 1, 2018, 3. If each partner received P30,000 on the residual profit afier salaries, interest and bonus, the net income ~ reported by the partnership during the I 6-months of operation is€ 340 , O82.v : a ‘4. Considering your answer in No. 3, the capital balance of Marvin on December 31, 2018 is ¥32\ \82 X ‘Case 5. On April 1, 2018, Chito and Emie pooled their resources to form a partnership, with the firm taking over their business assets and assuming their business liabilities. On this date, their individual trial balances show the following: { Chito Ernie Chite Genie ‘Cash. P25,000 30,000] | 25 060 | 3a Ou Féom "Non cash assets 120,000 190,000 | [166 000 | 1a) COO “Accounts payable 60,000 45,000 | | GS 000 +See ‘Notes payable 700,000 Ge eee Capital, 115,000 105,000 | [190 800 | 136 “ZeS OU) _25G 00D Bao am 220 BO The partners agreed that the capital and profit & loss ratio are 50:50,and that additional investment is to be made to raise the total capital to P250,000: a. Non cash assets should be adjusted to their market values of: Chito, P150,000 and Erie, P220,000 b. Unrecorded liabilities in the books of Chito amounting to P5,000 while accrued interest on notes payable of Ernie in the amount of P5,000 is to be recognized. cc. Prepaid rent in the books of Ernie amounting to P6,000 is to be recorded. 5. The amount invested by Chito to confirm with the agreement is $240 eo hy 6. The amount invested by Ernie to confirm with the agreement is P32G OD i. Case 6. Dr Matias and Dr. Guballo entered into a partnership agreement wherein Dr. Matias is to have ¢ 60% interest in capital and profits while Dr. Guballo is to have a 40% interest in capital and profits. Dr. Matias contributed the following non cash assets and enough cash to meet the 60% interest in capital Or. motias Book Value | Fair Value Land 500,000 P875,000 Building 1,250,000 625,000 ‘Equipment, 375,000 250,000 ‘There is a P250,000 mortgage on the building that the partnership agrees to assume. Dr. Guballo contributed P1,500,000 cash for his 40% interest in the partnership. o 7. The amount of cash invested by Dr. Matias is P¥S0 com> _*, a & The total assets ofthe partnership after the formation is P sono coy" ‘Case 7. Luis and Angel entered into a partnership on March 1, 2016 with the following investment: Luis P210,000 Angel 150,000 > 360.od> Luis is the managing partner and he is to receive a salary of P24,000 per year plus bonus equal to 10% of profit. ‘The ' partners also agreed to give 10% interest on their beginning capital and the residual profit is divided in the ratio of beginning capital. On December 31, 2018, the trial balance of the partnership is given on the following page: cl G37 Luig Bagel Totm Salary — 24000 Rveses Interest 21000 1s Ow 36 00D Voomaer (4579) (ones) (9303 qo ns S1G5F NTPOLYTECHNIC UNIVERSITY OF THE PHILIPPINES. Page 4 of 4 ‘COLLEGE OF ACCOUNTANCY AND FINANCE : Sta. Mesa, Manila y Quiz on Partnership Formation and Operation Luis & Angel Partnership ‘December 31, 2018 Debit ‘Credit Cash 140,000 ‘Accounts Receivable 134,000 Prepaid Insurance 24,000 Office Supplies 5,000 Furniture and fixtures 45,000. Store Equipment 200,000. hases 390,000 — Purchase Returns 26,000 Sales 362,000 Sales Returns 15,000 Liu 235 Operating Expenses 715,000. —TRecomt pabte Luis, Capital 210,000 [ Angel, Capital 150,000 Total P,068,000 | 1,068,000 Data for adjustments: Inventories on December 31, 2018 were: Merchandise, P75,000 and Office supplies on hand was P2,800 only, ‘The prepaid insurance is for one year from March 1, 2618. Accrued utilities of P6,200 is to be recognized. Al depreciable assets have 5 years estimated life from March 1, 2018. Use straight line method. Income tax rate of 30% is to be considered. passe 9. The net income or loss after tax of the partnership for the period ended December 31,2018 ft 10. The share of Luis in the net income or loss of the partnership is: P HO \2% _¥.\p+ GSB Gowmreey ee het Pumhases SGU cD s $aa008 Pog; + Less Operate) Expenses 184 22> _ \meome before tax QUE 73 FO? Leys stove 22120 (noe iho tax 51, BF _ ae Sp