PARCOR

1. Which of the following is not a characteristic of a partnership?

a. The partnership itself pays no income taxes.
b. It is easy to form a partnership.
c. Any partner can be held personally liable for all debts of the business.
d. A partnership requires written Articles of Partnership.
2. The disadvantages of the partnership form of business organization, compared to
corporations, include
a. The legal requirements for formation
b. Unlimited liability for the partners
c. The extent of government regulation
d. The complexity of operations
3. Which of the following is not a characteristic of the proprietary theory that influences
accounting for partnerships?

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a. Partners’ salaries are viewed as a distribution of income rather than a component
of net income.

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b. A partnership is viewed as a separate, distinct, taxable entity.
c. A partnership is characterized by unlimited liability.

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d. Changes in the ownership structure of a partnership result in the dissolution
of the partnership. rs e
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4. Claims against partners’ personal assets by creditors if the partnership can’t pay its debts
refers to
a. Liquidation.
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b. Dissolution.
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c. Unlimited liability.
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d. Mutual agency.
5. A partner who is liable for the payment of partnership debts to the extent of his separate
property after the partnership assets are exhausted is called
a. Limited partner
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b. Managing partner
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c. General partner
d. Capitalist partner
6. Which of the following is a characteristic of most partnerships?
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a. Unlimited life
b. Mutual contribution
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c. Limited liability
d. Division of profits only
7. A partner who does not take active part in the business of the partnership though may be
known as a partner
a. Dormant
b. Secret
c. Silent
d. Nominal

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 8. At what value will cash contributions of a partner be recorded in the partnership books?
a. Future value of cash
b. Actual amount of cash
c. Purchasing value of cash
d. Past value of cash
9. Two sole proprietors formed a partnership. Non-cash assets forming part of the initial
investment in the partnership would be recorded at the
a. Fair value of the property at the date of the investment.
b. Proprietors’ book values of the property at the date of the investment.
c. Proprietors’ book values or the fair value of the property at the date of the
investment, whichever is higher.
d. Proprietors’ book values or the fair value of the property at the date of the
investment, whichever is lower.
12. Which of the following would be least likely to be used as a means of allocating profits
among partners who are active in the management of the partnership?
a. Salaries

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b. Bonus as a percentage of net income before the bonus
c. Bonus as a percentage of sales in excess of a targeted amount

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d. Interest on average capital balances
13. Which of the following distributions would be made last in dividing profits to the partners

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when interest on capital balances and salary allowances are involved?
a. Equally. rs e
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b. Salary allowances.
c. Specified ratio.
d. Interest on capital balances.
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14. What is the underlying purpose of the salary component of allocating partnership profits and
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losses?
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a. Reward for labor and expertise contributions

b. Reward for special responsibilities undertaken
c. Compensate partners who contribute economic resources to the partnership
d. None of the above
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15. A partnership agreement calls for allocation of profits and losses by salary allocations, a
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bonus allocation, interest on capital, with any remainder to be allocated by preset ratios. If a
partnership has a loss to allocate, generally which of the following procedures would be applied?
a. Any loss would be allocated equally to all partners.
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b. Any salary allocation criteria would not be used.

c. The bonus criteria would not be used.
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d. The loss would be allocated using the profit and loss ratios, only.
16. Partners active in a partnership business should have their share of partnership profits based
on the following
a. a combination of salaries plus interest based on average capital balances.
b. a combination of salaries and percentage of net income after salaries and any
other allocation basis.
c. salaries only.
d. percentage of net income after salaries is paid to inactive partners.

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 23. Which of the following must occur for a new partner to enter the partnership by acquiring an
ownership interest directly from an existing partner?
a. Existing partner must know the amount the new partner is paying for the
ownership interest
b. Existing partners must approve the admission of the new partner into the
partnership
c. The new partner must live in the same state as the other partners
d. The new partner must acquire all of the current partner’s ownerships interest
24. Which of the following will not result in dissolution of a partnership?
a. Incapacity of a partner
b. Negative capital balance of a partner
c. Bankruptcy of a partner
d. Admission of a new partner
25. A bonus is recognized by existing partners at the date a new partner joins a partnership when
which of the following relationships occur?

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a. The new partner’s contribution is less than his/her percentage of total

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partnership capital after the investment is made

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b. The new partner’s contribution is equal to his/her percentage of total

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partnership capital after the investment is made

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c. The new partner’s contribution exceeds his/her percentage of total
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partnership capital after the investment is made
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d. it is not possible to determine the answer to this question
26. The dissolution of a partnership occurs
a. Only when a partner leaves the partnership
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b. At the end of each year, when income is allocated to the partners

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c. Only when a new partner is admitted to the partnership

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d. When there is any change in the individuals who make up the partnership
27. Which of the following is not a criterion for recognizing a bonus to a new partner when the
new partner joins the partnership?
a. Only cash assets were contributed to the partnership by the new partner
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b. The existing partners desire to not recognize goodwill on the balance sheet
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c. The articles of partnership indicate that the bonus method will be used to
admit new partners
d. The new partner invests less into the partnership that his/her share of total
partnership capital after the investment is made
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28. Who may acquire the ownership interest of a partner who is withdrawing from a partnership?
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a. Existing partner
b. The partnership
c. New investor
d. All of the above
35. In partnership liquidation, how are partner salary allocations treated?
a. Salary allocations take precedence over creditor payments.
b. Salary allocations take precedence over amounts due to partners with respect
to their capital interests, but not profits.
c. Salary allocations take precedence over amounts due to partners with respect to
their capital profits, but not capital interests.

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 d. Salary allocations are disregarded
36. If conditions produce a debit balance in a partner’s capital account when liquidation losses
are allocated
a. the partner receives further allocations of liquidation losses, but not gains.
b. the partner receives no further allocation of liquidation losses and gains.
c. the partner is no longer obligated to partnership creditors.
d. the partner has an obligation of personal net assets to the other partners.
37. If all partners are included in the first installment of an installment liquidation, then in future
installments.
a. cash will be distributed according to the residual profit and loss sharing ratio.
b. cash should not be distributed until all non-cash assets are converted into cash.
c. a safe payments schedule must be prepared before each cash distribution to
avoid excessive payments to partners.
d. a cash distribution plan must be prepared so that partners will know when they
will be included in cash distributions.
38. Which of the following is not a possible claim against a partner’s personal assets?

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a. Personal creditors of other partners
b. Other partners, if the partner in question has a deficit capital account

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c. Personal creditors of partner in question
d. Partnership creditors if claim is not fully paid from partnership assets.

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39. A partnership dissolution differs from liquidation in that
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a. payments are made to creditors before partners receive value.
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b. periodic payments to partners are made when cash becomes available.
c. a partner withdraws from the business and the enterprise continues to function.
d. full payment is made to all outside creditors before remaining cash is distributed
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to partners in a final lump sum payment

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46. An ordinary shareholder does not possess which of the following?

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a. The right to direct ownership of the corporate assets.

b. The right to share proportionately in corporate assets in case of liquidation if
such assets exceed the claim of creditors.
c. The right to share in the earnings of the corporation when dividends are
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declared.
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d. The right to vote in the election of board of directors of the corporation.

47. Which of the following does not describe a corporation?
a. Continuous existence
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b. Centralized authority
c. Limited liability of shareholders
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d. Mutual agency
48. They regulate the various internal matters regarding the calling and conducting of mee
ting of stockholders and directors.
a. By-Laws
b. Articles of incorporation
c. Voting trust agreement
d. None of the above

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 49. Right of the corporation to continue as a juridical entity for the period stated in the Article of
Incorporation despite the death of any shareholder:
e. Right of succession
f. Right of pre-emption
g. Right of existence
h. None of the above
50. Which of the following dates pertaining to dividend will not require any journal entry?
a. Date of declaration
b. Date of record
c. Date of payment
d. All of the above
51. The issuance of preference shares
a. Increases preference shares outstanding
b. Has no effect on performance share outstanding
c. Increases preference shares authorized
d. Decreased preference shares authorized

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52. The contributed capital of a corporation does not include
a. Share premium.

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b. Retained earnings
c. Preference share

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d. The stated value of ordinary shares issued.
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53. What is the accounting treatment for a corporate organization cost?
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i. Outright expense
j. Intangible asset
k. Other asset
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l. Deferred expense
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54. It comprises the components of outstanding shares.

a. Total issued
b. Total issued less treasury shares
c. Total issued plus subscribed shares, less treasury shares
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d. Total authorized shares

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55. Which of the following will not reduce the total accumulated profits?
a. Appropriation of accumulated profits for legal requirement.
b. Declaration of share capital dividend.
c. Correction of unrecorded expense in prior year.
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d. Declaration of property dividend when the market price per share is higher than par.
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56. Which of the following will result in a deficit?

a. The income summary has a net credit balance.
b. The revenue is more than the expenses.
c. The appropriation reserve is more than the income earned for the year.
d. The beginning credit balance of accumulated profits is less than the debit
balance of income summary for the year.
57. Which of the following statements best described the net effect on retained earnings of the
purchase and subsequent sale of treasury shares?
a. Retained earnings sometimes may be increased but never be decreased

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 b. Retained earnings account is always affected unless the sale price is exactly equal to
cost.
c. Retained earnings may never be increased but sometimes decreased
d. Retained earnings may never be increased or decreased
58. Which of the following statements pertaining to share capital transaction is not correct?
a. The total shareholders’ equity is increased by amount of cash received
b. The excess of par value over the fair value of noncash item received increase the
retained earnings
c. The noncash item received is recorded at its fair value
d. The total shareholders’ equity is decreased by the value of liability set off.
59. An entity review and adjust the carrying amount of the dividend payable at the end of each
reporting period and at the date of settlement with any changes in the carrying amount of the
dividend payable recognized
a. As adjustment of general reserve
b. As component of other comprehensive income.

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c. In equity as adjustment to the amount of distribution

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d. In profit or loss

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60. The liquidating value of the preference share includes any of the following, except

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m. Share premium of preference shares.

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n. par value of preference shares.
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o. liquidating premium of preference shares.
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p. stated value of preference shares.
61. One of the following is not true in a share split.
a. Upward split will decrease the par value per share
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b. Reverse split will decrease the number of shares

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c. Upward split will increase the shareholders’ equity

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d. Reverse split will increase the par value per share

62. When treasury shares are purchased for more than par value, what account or accounts shall
be debited?
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a. Treasury shares for the par value and share premium for the excess of purchase
price over the par value.
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b. Share premium for the purchase price.

c. Treasury shares for the purchase price.
d. Treasury shares for the par value and retained earnings for excess of the purchase
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price over the par value.

63. Which of the following statement is incorrect concerning retained earnings?
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a. Appropriated retained earnings shall be clearly distinguished from unappropriated

retained earnings.
b. A deficit in retained earnings shall be presented as an asset.
c. When the deficit exceeds the total of the other capital account balances, the excess is
a capital deficiency
d. A deficit is a debit balance retained earnings.
64. The accumulated earnings are restricted by the following, except:
a. Government discretion
b. Contractual obligation

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 c. Legal requirements
d. Management discretion
65. Which of the following could be declared as share capital dividend?
a. Issued and outstanding shares
b. Treasury shares
c. Subscribed but not fully paid shares
d. Retired shares
66. Which of the following correctly describes the effect of the declaration of each type of
dividend?
LiabilityEquity
a. a. Share capital dividend Increase Decrease
b. b. Cash Dividend Increase Increase
c. c. Share Capital dividend No effect No effect
d. d. Property Dividend Decrease Decrease
67. Which of the following is not correct?
a. Noncumulative preference share is entitled only to current dividend.

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b. Preference shares are presumed to be cumulative and participating unless stated
otherwise.

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c. The basis of computing dividends in arrears is the latest outstanding shares.
d. Dividend in arrears should be specifically stated.

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68. Which of the following statements is not correct?
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a. Appropriation of accumulated profits will require setting aside of equivalent
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amount of cash.
b. Declaration of share dividend will reduce the accumulated profits at the date
of the declaration.
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c. Appropriation of accumulated earnings will not change the balance of total

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shareholders’ equity.
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d. Acquisition of treasury shares will require appropriation of accumulated profits.

69. If the corporation has only ordinary shares, its book value per share is the
a. total assets divided by total outstanding shares.
b. total assets divided by total authorized shares.
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c. net asset divided by average outstanding ordinary shares.

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d. net asset divided by total outstanding ordinary shares.

99. A weakness of the current ratio is
a. The difficulty of the calculation
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b. That it does not take into account the composition of the current assets
c. That it is rarely used by sophisticated analysis
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d. That it can be expressed as a percentage, as a rate, or as a proportion

100. Which of the following statements regarding financial analysis is true?
a. Financial analysis will show how a company is guaranteed to perform in the
future
b. Financial analysis should not be relied upon as an indicator of future
performance
c. Financial analysis should be performed only by managers and creditors
d. Financial analysis provides supplemental information not provided directly
by the financial statements

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 BASIC
64. Statement 1: Under the perpetual inventory system, the ending merchandise inventory
balance is closed at the same time as cost of goods sold.
Statement 2: On the worksheet of a merchandising company that uses the perpetual
inventory system, the Merchandise Inventory account balance is not adjusted.
Statement 3: Both Freight In and Freight Out are closed by debiting the accounts.
a. Only statement 1 is incorrect
b. Statements 1 and 3 are incorrect
c. Only statement 3 is incorrect
d. All statements are incorrect
65. Statement 1: The total of the other accounts column of the cash receipts journal is not
posted to the general ledger.
Statement 2: The voucher register is a substitute for a sales journal.
Statement 3: When special journals, control accounts and subsidiary ledgers are used,
no posting to any ledger is performed until the end of the month.
a. Only statement 1 is correct

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b. Statements 1 and 3 are correct
c. All statements are correct

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d. Only statement 3 is correct
71. I Manufacturing costs are regarded as expenses of the current period and are

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expensed when incurred.
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II A manufacturing company usually has three separate inventories: raw materials,
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work in process and finished goods.
III Conversion costs consist of direct materials and direct labor.
a. All statements are incorrect.
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b. Only statement I is incorrect.

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c. Statements I and III are incorrect.

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d. Statements II and III are incorrect.

74. They are purposes of internal control except:
e. Minimize errors & prevent fraud for reliability of accounting records
f. Promote operational efficiency
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g. Collusion
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h. Ensure compliance with laws & regulations

75. Which of the following is the purpose of establishing petty cash fund?
a. To take care of emergencies
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b. To take care of payments that are not practical to pay by issuing

checks
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c. To lend employees on term basis

d. To control the payments
76. Seldom does the balance of the cash in bank account in the depositor’s books agree
with the balance appearing in the bank statement at a particular date because of
a. Bank secrecy requirements.
b. Negligence by the bookkeeper.
c. A tax avoidance scheme.
d. Time-lapse differences.
80. When a specific customer’s account receivable is written-off as uncollectible, what

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 will be the effect on net income under the allowance and direct write-off method?
a. No effect under both allowance method and direct write-off method
b. Decrease under both allowance method and direct write-off method
c. No effect under allowance method and decrease under direct write-off method
d. Decrease under allowance method and no effect under direct write-off
method
86. Inventories shall be measured at
i. Cost
j. Net Realizable Value
k. Lower of cost or net realizable value
l. Lower of cost or fair value less cost to sell
87. Inventories encompasses all of the following, except
a. Merchandise purchased by a retailer
b. Land and other property not held for sale
c. Finished goods produced
d. Materials and supplies awaiting use in the production process

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88. In periodic inventory system that uses the average cost flow method, the beginning
inventory is

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a. net purchase minus ending inventory
b. net purchases minus the cost of goods sold

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c. total goods available for sale minus the net purchases
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d. total goods available for sale minus the cost of goods sold
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ed d
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