Name Date

: : Score:
Schedule
Professor: :

TRUE OR FALSE
On the space provided, write TRUE if the statement is correct, if incorrect, write FALSE.

___________1. Non-cash contribution of partners in a partnership shall be recorded in the

partnership books at fair market value. In the absence of a reliably measurable
fair market value, the agreement between and among the partners shall suffice.
___________2. A limited partner participates in the profits but not in the losses of the business.
___________3. A partnership at will is a kind of partnership that has a specific reason for its
formation.
___________4. Cash contribution of partners shall be recorded in the partnership books at fair
market value.
___________5. A secret partnership is one wherein the existence of certain person/s as partner is
not made known to the public.
___________6. An industrial partner’s liability in relation to the partnership’s liability is only up to
the extent of his contribution.
___________7. A partnership having a capital of three thousand pesos or more, in money or
property should appear in a public instrument; otherwise, its existence as to third
parties shall be null and void.
___________8. In partnership liquidation and in reference to the partners’ personal assets, the
personal liabilities of partners shall be settled first before settling unsettled
liabilities of the partnership.
___________9. One advantage of a partnership form of organization is that all partnerships are
exempted from paying the 35% corporate income tax.
___________10. A partnership provides for better management resulting from combined abilities
and talents of partners than a corporation.
___________11. A partnership is less effective than a sole proprietorship in raising large amount of
capital.
___________12. A limited partner who allows their surnames to be included in the partnership’s
title of business shall be liable as a general partner.
___________13. The settlement of a partner’s personal liability through the partnership’s fund
shall be accounted for by crediting the partner’s drawing account.
___________14. Funds extended by a partner to the partnership as a loan shall be accounted for
by crediting the partner’s capital account.
___________15. The industrialist partner’s contribution shall be recorded in the partnership books
by a credit to the partner’s capital account at fair market value of services
expected to be extended to the partnership.
MULTIPLE CHOICE - CONCEPTUAL
Select the letter of the best possible answer to each of the following items.

_____1. Which of the following is not an advantage of a partnership over a corporation?

A. Ease of formation
B. Unlimited liability
C. The elimination of taxes at the entity level
D. All of the above
E. None of the above

_____2. For financial accounting purposes, assets of an individual partner contributed to a

partnership are recorded by the partnership at
A. Historical cost
B. Book value
C. Fair market value
D. Lower of cost or market
E. None of the above

_____3. 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 requirement for the partnership to pay income taxes
D. The extent of government regulation
E. The complexity of operations

_____4. When property other than cash is invested in a partnership, at what amount should the
non-cash property be credited to the contributing partner’s capital account?
A. Fair value at the date of contribution
B. Contributing partner’s original cost
C. Assessed valuation for property tax purposes
D. Contributing partner’s tax basis
E. None of the above

_____5. Which of the following statements concerning partnership is true?

A. A partnership is a legal entity, separate and distinct from the individual
partners
B. Individual partners are jointly liable for the debts and obligations of a
partnership
C. Income tax is levied on the individual partners’ shares of the net income of
a partnership and is reported in their personal tax returns
D. All of the above is true
E. None of the above is true
_____6. The drawing ledger accounts of limited liability partners are used:
A. To record the partner’s salaries
B. To reduce the partner’s capital account balances at the end of an
accounting period
C. In the same manner as the partners’ loan accounts
 D. To record the partners’ share of net income or loss for an accounting period
E. None of the above

_____7. Which of the following statements are true when comparing corporations and
partnerships?
A. Partnership entities provide for taxes at the same rates used by
corporations
B. In theory, partnerships are more able to attract capital
C. Like corporations, partnerships are more able to attract capital
D. Unlike shareholders, general partners may have limited liability beyond
their capital accounts
E. None of the above

_____8. On June 30, 2014, Tara, Mara, and Lara formed a partnership by combining their
separate business proprietorships. Tara contributed cash of P25,000. Mara contributed
property with a P18,000 book value, a P20,000 original cost, and P40,000 fair value. The
partnership accepted responsibility for the P17,500 mortgage attached to the property.
Lara contributed equipment with a P15,000 book value, a P37,500 original cost, and
P27,500 fair value. The partnership agreement specifies that profits and losses are to be
shared equally but is silent regarding capital contributions. Which partners has the
largest capital on June 30?
A. Tara
B. Mara
C. Lara
D. All capital account balances are equal
E. None of the above

_____9. Partner’s interest in a partnership is generally equal to:

A. The fair value of net assets at date of contribution
B. The sum of the fair values of the assets the partner contributes to the firm,
increased by any liabilities of other partners assumed and decreased by any
personal liabilities that are assumed by other partners
C. The sum of the bases of the individual assets the partner contributes to the
firm decreased by the partner’s share of partnership liabilities
D. The unamortized cost of the assets to the partner
E. None of the above

_____10. A partner’s withdrawal of assets from a partnership that is considered a permanent

reduction in the partner’s equity is debited to the partner’s:
A. Drawing account
B. Capital account
C. Loan receivable account
D. Any of the above
E. None of the above

MULTIPLE CHOICE - PROBLEMS

1. On July 1, 2014 Peabo and Bryson formed a partnership agreeing to share profits and losses 40%
and 60%, respectively. Peabo invested a parcel of land which originally costed him P50,000.
 Bryson invested P60,000 in cash. The land was sold for P100,000 immediately after the
formation of the partnership. How much should be the capital balance of Peabo right after the
partnership formation?
A. P 50,000
B. P 60,000
C. P120,000
D. P100,000
E. None of the above

2. On March 1, 2014, Boy and Girl formed a partnership with each contributing the following
assets:

Boy Girl
Cash P150,000 P350,000
Machinery and equipment 125,000 375,000
Building 1,125,000
Furniture and fixtures 50,000

The building is subject to mortgage loan of P400,000, which is to be assumed by the partnership
as per agreement. Moreover, it was stipulated that Boy and Girl share profits and losses 30%
and 70%, respectively. On March 1, 2014 the balance in Girl’s capital account should be:
A. P1,850,000
B. P1,570,000
C. P1,525,000
D. P1,450,000
E. None of the above

3. Chris and Grace formed a partnership on March 1 of the current year by contributing certain
assets to the common fund. Chris contributed an equipment costing P100,000 with a market
value of P75,000 and enough cash to have a 60% interest on the partnership. Grace contributed
a van with an original cost of P250,000, was assessed for tax purposes at P100,000 and had a
second hand value of P150,000. The van was a subject to a chattel mortgage of P25,000 that
was assumed by the partnership. Graces’ capital account at March 1, 2014 should be:
A. P225,000
B. P150,000
C. P125,000
D. P100,000
E. None of the above

4. On October 1, Christina, Maya and Kim formed a partnership. They agreed that Christina will
contribute office equipment with a total fair value of P80,000; Maya will contribute delivery
equipment with a fair value of P160,000; and Kim will contribute cash. If Kim want to share 25%
interest in the capital and in the profits, she should contribute cash amounting to:
A. P 80,000
B. P160,000
C. P240,000
D. P320,000
E. None of the above
5. Lady and Angela formed a new partnership where Lady contributed P900,000 in cash for a 40%
interest in the initial capital as well as in the profits of the business. Angela contributed a real
property (land and building) which she originally acquired at a total acquisition price of
P850,000. The real property is assessed for tax purposes at a total of P600,000. The Land is
independently appraised at a fair value of P450,000 and the building at a sound value of
P650,000. The asset is subjected to a real mortgage amounting to P250,000. What amount of
cash should Angela invest in addition to the real property?
A. P1,000,000
B. P 750,000
C. P 500,000
D. P 250,000
E. None of the above

6. On April 30, 2014, Baba, Bebe and Bubu formed a partnership by combining their separate
business proprietorships. Baba contributed cash of P150,000. Bebe contributed property with a
P108,000, carrying amount a P120,000 original cost, and P240,000 fair value. The partnership
accepted responsibility for P105,000 mortgage attached to the property. Bubu contributed
equipment with a P90,000 carrying value, a P225,000 original cost, and P165,000 fair value. The
partnership agreement specifies that profits and losses are to be shared equally but is silent
regarding capital contributions. Which partner has the largest capital balance as of April 30,
2014?
A. Baba
B. Bebe
C. Bubu
D. All are equal
E. None of the above

7. Malou, Ivy and Beth are forming a new partnership engaged in providing school service to
elementary and high-school students. Malou is to invest cash of P100,000 and an L-300 van
originally costing P120,000 but has a second-hand value in the market at P50,000. Ivy is to invest
cash of P160,000, while Beth, whose family engaged in the buy and sell of used car is to
contribute cash of P50,000 and a van to be used by the partnership with a regular cash price of
P120,000 but which cost their family’s business P100,000. Partners agree to share profits
equally. The capital balances upon formation are:
A. Malou, P220,000; Ivy, P160,000; Beth, P150,000
B. Malou, P150,000; Ivy, P160,000; Beth, P170,000
C. Malou, P160,000; Ivy, P160,000; Beth, P160,000
D. Malou, P176,666; Ivy, P176,666; Beth, P176,668
E. None of the above