PARTNERSHIP 18.
The admission of an individual in a partnership strictly requires the
TRUE OR FALSE
1. A partnership contract is perfected by law.
2. If there is no agreement as to distribution of losses but there is an
agreement as to profits, the losses shall be distributed according to
their original capital contributions.
3. In a limited partnership, all partners are liable only to the extent of
their contributions to the partnership.
4. In organizing a partnership, the agreement of the partners must be
embodied in a public instrument referred to as the Articles of
Incorporation.
5. Mutual agency states that any partner can bind the other partners to
a contract if he is acting within his express or implied authority.
6. All partnerships are subject to tax at the rate of 30%.
7. Each partner has a capital and withdrawal account.
8. A partner’s contribution in the form of non-cash assets should be
always recorded at its fair market value.
9. In a general partnership, a majority of the partners are liable to the
extent of their personal property.
10. Allowance for Uncollectible Accounts and Accumulated Depreciation
on non-cash assets invested by the partners are carried on the
partnership books.
11. A partnership has the capacity of continued existence regardless of
death, withdrawal, insolvency, or incapacity of one of its partners.
12. If the partners did not agree as to how profits are to be divided, then
such should be divided among the partners equally.
13. A contract of partnership is void whenever immovable property or
real rights are contributed and a signed inventory of the said property
is not made and attached to a public instrument.
14. One advantage of partnership is the division or sharing of profits.
15. Loans payable to partners must be paid after the claims of outside
creditors have been fully paid.
16. The adjustment of the assets and liabilities prior to formation
involves a debit or credit to the capital account instead of debiting or
crediting a nominal account.
17. The books of the partnership are opened with entries reflecting the
net contributions of the partners to the firm.
consent of majority of partners.
19. A partner’s contribution in the form of industry or service is recorded
by a memorandum entry.
20. All partnerships have at least one limited partner.
21. The limited liability of the partners for partnership debts makes the
partnership more reliable from point of view of creditors.
22. Bonus is allowed to partners only if there is a partnership loss, since
bonus is based on profit.
23. All partners are to share on whatever partnership profits and losses.
24. Unless otherwise agreed, allowance for salaries and interest are
allowed to partners whether there is a profit or a loss; whether the
profit is sufficient or not.
25. The percentage interest in a partnership is always the same as the
profit-sharing ratio.
26. Partners may intend for salary and interest allowances to be
deducted in determining the base for computing bonus. In such case,
no bonus is allowed if there is sufficient profit after distribution of
salaries and interests.
27. The drawing account of a partner may have a debit or a credit
balance.
28. Salaries allowed to partners as distribution of partnership profits is
treated as an expense.
29. Total assets of the partnership may increase upon admission of a new
partners by purchase of interest.
30. An insolvent partner is a partner with a debit balance on his capital
account after the transfer of loss on realization.
31. Admission of a new partner by investment will increase both the total
assets and total liabilities.
32. Both asset revaluation and bonus affect total capital.
33. A change in partnership ownership liquidates the partnership.
34. Asset revaluation may be recorded upon the admission of a new
partner whether by purchase or by investment.
35. When the partnership agreement specifically provides for salaries
and interest, the provision must be applied after the remainder of
profit or loss is divided.
36. A positive asset revaluation indicates that some partnership assets
are undervalued.
37. The sale of a partner’s interest is a partnership transaction between
the selling partner/s and the buying or new partner.
38. The admission of a new partner in an existing partnership dissolves
the old partnership.
39. Dissolution is the process of winding up a business.
40. A bonus given by the old partners to the new partner increases the
capital account balances of the old partners.
41. The remaining partners’ capital balances will increase when the
amount of settlement to a retiring partner is more than the retiring
partner’s capital balance.
42. Agreed capital is the amount new capital set by the partners for the
partnership.
43. Capital credit is the transfer of capital from one partner to another.
44. A partner who desires to withdraw from the partnership may do so
as long as he gets the consent of all of the other partners.
45. Partnership liquidation is always succeeded by partnership
dissolution.
46. The new partner’s capital credit exceeds his asset contribution to the
partnership when a bonus is given to this new partner.
47. A bonus is normally shared by the existing partners in their profit-
sharing ratio.
48. A change in the partnership ownership does not necessarily interrupt
the partnership operations.
49. Liquidation expenses affect both cash and capital.
50. The loan receivable from a partner has a higher priority in liquidation
than a partner’s capital balance but a lower priority than liabilities to
outside creditors.
51. Payment to a retiring partner of an amount in excess of his capital
balance may indicate that some partnership assets are overvalued.
52. A resulting capital deficiency after realization indicates that the
partner’s capital before liquidation is not sufficient to cover his share
in the loss on realization.
53. Personal creditors of individual partners have priority over
partnership creditors in the order of claims against the partnership
assets.
54. In partnership liquidation, any gains or losses on the sale of non-cash
assets must be divided equally among partners.
55. In liquidation, cash should be distributed to partners on the basis of
the partners’ profit and loss ratio.
56. The process of liquidating the partnership is summarized in a
statement of partnership liquidation.
57. After the distribution of cash to the partners in a lump-sum
liquidation, the business has no assets, liabilities, and owner’s equity.
58. Partnership dissolution always leads to partnership liquidation.
59. Only solvent partners shall absorb the capital deficiency of an
insolvent partner.
60. In installment liquidation, the proceeds from all assets are fully
realized before any distribution of cash is made.
61. Assets are generally classified as cash and non-cash assets in a
statement of partnership liquidation.
62. When a deficient partner has a loan from the partnership, the
deficiency shall be offset against the loan. The amount to be offset
shall be the lower of the amount of the loan or the amount of the
deficiency.
63. Non-cash assets that are not sold should be written off as a loss and
such loss is divided to the partners equally.
64. Accounting for the sale of a retiring partner’s interest to the
continuing partner is the same as sale to the partnership.
65. The sale of interest of the retiring partner to a new partner will
require the recognition of a gain or loss on the partnership books.
66. In partnership liquidation, advances and withdrawals are closed to
capital accounts since cash settlement is based on the partners’
capital account balances.
67. The cash priority program is prepared after cash becomes available
for distribution.
68. The loss absorption capacity is the maximum loss a partner may
absorb and may eliminate any partner in any cash distribution.
69. To get the loss absorption capacity of a partner, divide total partner’s
interest by their profit and loss ratio.
70. After the partners’ loss absorption balances are made equal, cash
distributions are made according to their remaining capital balances.
*end* /lloydiepogi