PACOA
SELECT THE CORRECT ANSWER ;
1. ON July 1, a partnership was formed by Jack and Jill. Jack contributed cash , Jill previously a
sole proprietor, contributed property other than cash including realty subject to a mortgage
which was assumed by the partner. Jill capital account at July 1 should be recorded at
a. Jill’s book value of the property less the mortgage payable at July 1
b. The fair value of the property less the mortgage payable at July 1
c. The fair value of property at July 1
d. Jill ‘s book value of property at July 1
2. Two individuals who were previously sole proprietor’s formed a partnership. Property other
than cash which is part of the initial investment in the partnership would be recorded for
financial accounting purposes at the
a. Proprietor’s book value or the fair value of the property at the date of the investment ,
whichever is higher
b. Proprietor’s book value 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
3. One of the following is not a requisite of a contract of partnership. Which is it?
A. There must be a valid contract
B. There must be mutual contribution of money, property or industry to a common fund
C. It is established for the common benefit of the partners which is to obtain profits and
divide the same among themselves
D. The articles are kept secret among members
4. In the absence of agreement as to the distribution of profit , how shall the partnership profit
be distributed to the partners ?
a. The industrial partner shall receive a share equivalent to the least share of a capitalist
partner while the capitalist partners shall share based on capital contribution ratio
b. The industrial partner shall receive a just and equitable share and the remainder shall be
distributed to the capitalist partners on the basis of capital contribution ratio
c. The profit shall be distributed on the basis of capital contribution ratio
d. The profit shall be distributed equally to all partners including the industrial partner
5. A partnership agreement calls for the allocation of profits and losses by salary allocations, a
bonus allocation and interest on capital , with any remainder to be allocated by present
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
b. Any salary allocation criteria would not be used
c. The bonus criteria would not be used
d. The loss would be allocated using the profit and loss ratios only
6. A partner’s drawing account is in substance
a. A capital account
b. A contra capital account
c. A salary expense account
d. A loan account (a loan from the partnership)
7. When Aida retired from the partnership of Aida, Lorna and FE , the final settlement of Aida’s
interest exceeded her capital balance. Under the bonus method, the excess is
a. Recorded as goodwill
b. Recorded as an expense
c. Of no effect to the capital accounts of Lorna and FE
d. Deducted from the capital accounts balances of Lorna and Fe
8. Which of the following results in dissolution of a partnership ?
a. The contribution of additional assets to the partnership by an existing partner
b. The receipt of a draw by an existing partner.
c. The winding up of the partnership and the distribution of remaining assets to the partners
d. The withdrawal of a partner from a partnership
9. Which of the following characterizes the bonus method of recording a new partner’s
investment in a partnership?
a. Net assets of the previous partnership are not revalued
b. The new partners capital balance is equal to his or her investment.
c. Assuming that recorded assets are properly valued, the book value of the new partnership
is equal to the book value of the previous partnership and the investment of the new
partner
d. The bonus always results in an increase to the previous partners capital balances
10. The ABC PARTNERSHIP has decided to terminate operations and to liquidate the partnership
assets. There are no partner loans, and all partners have positive capital balances. Gains and
losses on liquidation and cash distributions to partners should be allocated as follows;
a. Gains and losses – in profit and loss ratio ; cash distribution -based on capital balances
b. Gains and losses – based on capital balances ; cash distribution – in profit and loss ratio
c. Gains and losses -in profit loss and ratio ; cash distribution – in profit loss and ratio
d. Gains and losses – based on capital balances ; cash distribution – based on capital balances
11. If all partners are included in the first installment payment under installment liquidation , then
the next distribution will be made
a. According to the residual profit and loss ratio
b. On schedule of safe payments
c. According to cash priority program
d. According to capital balances
12. The doctrine of marshalling of assets
a. Is applicable only if the partnership is insolvent
b. Allows partners to first contribute personal assets to unsatisfied partnership creditors
c. Is applicable if either the partnership is insolvent or individual partners are insolvent
d. Amount owed to personal creditors and to the partnership for debit capital balances are
shared proportionately from the personal assets of the partners
13. What is the nature of liability of general partners as to partnership debts or obligations ?
a. They are liable equally up to the extent of their separate assets after the partnership
assets are exhausted
b. They are liable pro rata up to the extent of their separate assets after the partnership
assets are exhausted
c. They are liable pro rata up to the extent of their capital contribution only
d. They are liable solidarily up to the extent of their separate assets after the partnership
assets are exhausted
14. A partnership records a partners investment of assets in the business at
a. The market value of the assets invested
b. A special value set by the partners
c. The partners book value of the assets invested
d. Any of the choices , depending upon the partnership agreement
15. Which of the following statements is incorrect ?
a. Loan to partners is a liability account
b. Due to partner is a liability account
c. Due from partner is an asset account
d. Receivable from partner is an asset account
16. The following are considered as expenses of the partnership except
a. Office supplies used
b. Salaries of manager employed in the business
c. Bonus to managing partner
d. Interest on partnership’s outstanding loans
17. Tito and Vic are partners with profit and loss ratio of 80;20 and capital balances of 700,000
and 350,000 respectively. Joey is to be admitted into the partnership by purchasing a 30
percent interest in the capital and P and L for 420,000.
Which of the following is true in the bodies of the partnership upon admission of Joey ?
a. Increase in asset account in the amount of 420,000
b. Credit capital accounts of the selling partners with total amount of 315,000
c. Decrease in capital account of the acquiring partner in the amount of 105,000
d. The entry upon admission will not affect the total capital of the partnership
18. When a partner retires from the partnership and the settlement of his interest exceeded his
capital interest . Using the bonus method , the excess shall
a. Be recorded as an expense
b. Have no effect in the capital interest of the remaining partners
c. Decrease the capital balance of the remaining partners
d. Increase the capital balance of the remaining partners
19. When a cash priority program is prepared , a partner’s loan payable to the partnership is ?
a. Added to the capital account to determine the total interest
b. Ignored
c. Offset to partners withdrawal account
d. Deducted to the capital account to determine the total interest
20. If all partners are included in the first installment payment under the installment liquidation,
then the next distribution will be made
a. According to the residual profit and loss ratio
b. On schedule of safe payments
c. According to cash priority program
d. According to capital balances
