AFAR – PARTNERSHIP

MULTIPLE CHOICES

1. Albert, Claude, and Jamie form a partnership by contributing P25,000, P70,000, and P80,000,
respectively. In addition, the partners agree that Albert should receive P20,000 of goodwill
because of his special skills relevant to this business. What amount of capital will exist for Albert
when the partnership is formed?
a. P45,000 c. P80,000
b. P70,000 d. P65,000

2. On January 1, ML and BB formed MLBB partnership, agreeing to share profits and losses in the
ratio of 4:6 respectively. ML contributed a parcel of land that cost her P25,000. BB contributed
P50,000 cash. The land was sold for P 50,000 on January 1, 3 hours after formation of the
partnership. How much should be recorded in ML’s capital account on the partnership formation?
a. P10,000 c. P25,000
b. P20,000 d. P50,000

3. Which of the following is not a characteristic of 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 the debts of the business
d. A partnership requires written Articles of Partnership
e. Each partner has the power to obligate the partnership for liabilities

4. A partnership is formed by two individuals who were previously sole proprietors. Property other
than cash that is part of the initial investment in the partnership would be recorded for financial
reporting purposes at the
a. Proprietor's book values or the fair value of the property at the date of the investment,
whichever is higher.
b. Proprietor's book values or the fair value of the property at the date of the investment,
whichever is lower.
c. Proprietor's book values of the property at the date of the investment.
d. Fair value of the property at the date of investment.
e. None of the choices.

5. On July 1, 2022, Mortred and Lanaya formed a partnership. Mortred contributed cash. Lanaya,
previously a sole proprietor, contributed property other than cash, including realty subject to a
mortgage, which the partnership assumed. Lanaya's capital account at July 1,2022, should be
recorded at:
a. Lanaya's book value of the property at July 1, 2022.
b. Lanaya's book value of the property less the mortgage payable at July 1, 2022.
c. The fair value of the property less the mortgage payable at July 1, 2022.
d. The fair value of the property at July 1, 2022.

6. The admission of a new partner under the bonus method will result in a bonus to
a. the old partners only.
b. the new partner only.
c. either the new partner or the old partners, but not both.
 d. none of the above.

7. A partner’s withdrawal of assets from a limited liability partnership that is considered a

permanent reduction in that partner’s equity is debited to the partner’s:
a. Drawing account c. Capital account
b. Retained earnings account d. Loan receivable account