On June 1, 2021, Ramirez and Martinez formed a partnership with each contributing the following

assets:

Rey and Tom Partnership was organized and began operations on March 1, 2020. On that date, Rey
invested P950,000 and Tom invested machinery and equipment with current fair value of P800,000.
Because of shortage of cash, on November 1, 2020 Tom invested additional cash of P200,000 in the
partnership. The partnership contract includes the following remuneration plan:
From the choices given on the right corner of this question box, choose the correct answer that
best describes each of the question stated below:
Tan desires to purchase a one-fourth capital and profit and loss interest in the partnership of Simon,
Torres, and Ramos. The three partners agree to sell Jules one-fourth of their respective capital and
profit and loss interests in exchange for a total payment of P480,000. The capital accounts and the
respective percentage interests in profits and losses immediately before the sale to Jules are as follows:
The partners in the SGV Partnership have capital balances as follows: S, capital – P910,000; G, capital –
P910,000, V, capital – P1,365,000. Profits and losses are shared 3:2:5, respectively. On this date, V
withdraws and the partners agree to pay him P1,820,000 out of partnership cash. Tangible assets are
already stated at values approximating their fair market values. Hint: Journal entries.

Jeon, Kim, and Min are partners with present capital balances of P500,000, P600,000, and
P200,000, respectively. The partners share profit and losses according to the following
percentages: 60% for Jeon, 20% for Kim, and 20% for Min. Park is to join the partnership upon
contributing P600,000 to the partnership in exchange for a 25% interest in capital and a 20%
interest in profits and losses. The existing assets of the original partnership are undervalued by
P220,000. The original partners will share the balance of profits and losses in proportion to their
original percentages. Under the bonus method, answer the following (answers can be repeated ):
Jeon, Kim, and Min are partners with present capital balances of P500,000, P600,000, and
P200,000, respectively. The partners share profit and losses according to the following
percentages: 60% for Jeon, 20% for Kim, and 20% for Min. Park is to join the partnership upon
contributing P600,000 to the partnership in exchange for a 25% interest in capital and a 20%
interest in profits and losses. The existing assets of the original partnership are undervalued by
P220,000. The original partners will share the balance of profits and losses in proportion to their
original percentages.
Using the total/full goodwill method, answer the following (answers can be repeated):

A balance sheet of NJJ Partnership with partners Nelson, Joshua, and James who share profits in
the ratio 2:1:1, shows the following balances just before the liquidation on May 31, 2021

On the first installment of the liquidation, 60% of the other assets are sold for P960,000.
Liquidation expenses of P30,000 are paid, and additional liquidation expenses are anticipated.
Initial payment of liabilities is made amounting to P162,000 and sufficient cash is retained to
insure the payment to creditors before making payment to partners. On the first payment to
partners, Nelson receives P187,500. On the second installment, the remaining Other Assets are
sold at P150,000 loss. The remaining liabilities are paid
Kent Co. filed a voluntary bankruptcy petition on August 15, 2021, and the statement of affairs
reflected the following amounts:
The following data were taken from the general ledger of Outgoing Company as of August 1,
2021, before the company filed for bankruptcy
Big Corp. has been undergoing liquidation since December 1, 2020. As of July 31, 2021, the
following data are available

Mary admits Jane as partner in the business. Balance sheet accounts of Mary just before
the admission of Jane show: Cash, P26,000; Accounts Receivable, P120,000; Merchandise
Inventory, P180,000; and Accounts Payable, P62,000. It was agreed that for purposes of
establishing Mary’s interest, the following adjustments be made: 1) an allowance for
doubtful accounts of 3% of accounts receivable is to be established; (2) merchandise
inventory is to be adjusted upward by P25,000, and (3) prepaid expenses of P3,600 and
accrued liabilities of P4,000 are to be recognized. If Jane is to invest sufficient cash to
obtain 2/5 interest in the partnership, how much would Jane contribute to the new
partnership?

- P190,000
The proprietary theory is based on the notion that the business entity is an aggregation of
the owners.

- True

Partner Terry first contributes P200,000 of capital in an existing partnership on February

1, 2020. On June 1, 2020, the partner contributed another P200,000. On September 1,
2020, the partner withdraw P150,000 from the partnership. Withdrawals in excess of
P50,000 are chargeable to the partner’s capital account. The partnership’s fiscal year end
is December 31. The annual weighted-average capital balance is

-P266,667

The interest component of partnership profit and loss allocation rewards partners for
capital contributions.

- True

Partnerships are required to have interest on capital clauses in the articles of partnership.

-False

Net income should always be a component in the bonus calculation.

-False

Not all of the partners in a general partnership are personally liable for all debts incurred
by the partnership.

-False

In the absence of any agreement, salary allowances shall not be given when partnership
operations yielded losses.
-False

Which of the following is not a characteristic of the proprietary theory that influences
accounting for partnerships?

- A partnership is characterized by limited liability

The form and content of the statement of comprehensive income of a partnership resemble
those of a sole proprietorship with no exceptions.

- False

Partnerships are not required to prepare financial statements in accordance with

Generally Accepted Accounting Principles unless they have publicly traded debt or are
required to follow GAAP by a creditor.

-True

A stipulation that excludes one or more partners from any share in the profits or losses is
valid.

-False

-Which of the following is not considered a legitimate expense of a company?

The correct answer is: Interest paid to partners based on the amount of invested capital.

When an agreement provides for salaries to partner/partners, salary allocations must not
be made especially when profit is inadequate to cover salaries or there is a loss.

-False
Partnership capital and drawings accounts are similar to the corporate

-The correct answer is: Paid in capital, retained earnings, and dividend accounts.

RR, a partner in the RD partnership, is entitled to 40% of the profits and losses. During
2019, RR contributed land to the partnership that cost her P50,000, but had a fair value of
P60,000. Also, during 2019, RR had drawings of P80,000. The balance of RR’s capital
accounts was P120,000 at the beginning of the year and P150,000 at the end of the year.
What is the partnership’s comprehensive income (loss) for 2019?

-P125,000

Partnership residual profit and loss percentages have to be (always) the last component
applied in the profit and loss allocation process.

-True

Partnerships are not required to pay any taxes.

-False

Partners A & B share profits and losses equally after each has been credited in all
circumstances with annual salary allowances of P30,000 and P24,000, respectively. Based
on this agreement, in which of the following circumstances will Partner A benefit by P6,000
more than Partner B?

-In all earnings or loss situation.

When salary and interest allocations exceed profit, a loss has occurred.

-False

Arturo Perez, a partner in the AP Partnership, has a 30% participation in partnership

profits and losses. Perez’s capital account has a net decrease of P60,000 during the calendar
year 2019. During 2019, Perez withdrew P130,000 (charged against his capital account)
and contributed property valued at P25,000 to the partnership. What was the net income
of the AP Partnership for 2019?

- P150,000

Interest on loans from partners is recognized as partnership income.

- False

In normal circumstances, bonus to the managing partner shall be given even when the
results of operations of the partnership are unfavorable.

-False

Partnerships must revalue assets up and/or down when the profit and loss ratios are
adjusted.

-False

MM is trying to decide whether to accept a salary of P40,000 or a salary of P25,000 plus a

bonus of 10% of net income after salaries and bonus as a means of allocating profit among
the partners. Salaries traceable to the other partners are estimated to be P100,000. What
amount of income would be necessary so that MM would consider the choices to be equal?

- P290,000

Interest earned on loans to partners is recognized as income of the partnership.

-True

The fact that salaries paid to partners are not a component of partnership income is
indicative of
-The correct answer is: Being characteristic of the proprietary theory.

Individuals, partnerships, and corporations are allowed to be partners in a partnership.

-True

On January 2, 2019, Abel, Cain, and Joshua formed a partnership. Abel contributed cash
of P100,000 and a delivery equipment that originally costs him P120,000, but with a second
hand value of P50,000. Cain contributed P160,000 in cash. Joshua, whose family sells
office equipment, contributed P50,000 in cash and office equipment that cost his family’s
dealership P100,000 but with a regular selling price of P120,000. In 2019, the partnership
reported net income of P120,000. On December 31, 2019, what would be the capital
balance of partners Abel, Cain, and Joshua, respectively?

- Abel, P187,500; Cain, P200,000; Joshua, P212,500

KK, SS and WW formed a partnership on January 1, 2019. Each contributed P144,000.

Salaries were to be allowed as follows: KK, P36,000; SS, P36,000; and WW, P54,000.
Drawings were equal to salaries and be taken out evenly throughout the year. With
sufficient partnership net income, KK and SS could split a bonus equal to 25 percent of
partnership net income after salaries and bonus (in no event could the bonus go below
zero). Remaining profits were to be divided as follows: 30% for KK; 30% for SS, and 40%
for WW. For the year, partnership total comprehensive income was P144,000. What are
the capital balances of the partners on December 31, 2019:

- The correct answer is: KK, P150,120; SS, P150,120; WW, P149,760

Which of the following is not a component of the formula used to distribute income?

-The correct answer is: Interest on notes to partners.

A partner usually retains title to assets contributed to a partnership, so that certain assets
may be identified as belonging to a given partner.
-False

-If the partnership agreement does not specify how income is to be allocated, profit and loss
should be allocated

-The correct answer is: In accordance with their capital contributions.

Salary allowances given to partners are normally considered expenses recognized as a

deduction in the statement of income/expenses.

-False

The partnership form of business is

The correct answer is: An economic entity

In a limited partnership,

-The correct answer is: All but the general partners have limited liability

A bonus exists when the capital account of a partner is credited for an amount greater than
or less than the fair value of his contributions.

-True

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

-The correct answer is: A partnership requires written Articles of Partnership.

It is possible for a partner’s capital account to increase as a result of the allocation of a loss.

-True
On January 1, 2019, A, B, C, and D formed ABCD Trading Co., a partnership with capital
contributions as follows: A, P500,000; B, P250,000; C, P250,000; and D, P200,000. The
partnership contract provided that each partner shall receive a 5% interest on contributed
capital, and that A and B shall receive salaries of P50,000 and P30,000, respectively. The
contract also provided that C shall receive a minimum of P25,000 per annum, and D a
minimum of P60,000 per annum, which is inclusive of amounts representing interest and
share of remaining profits. The balance of the profits shall be distributed to A, B, C, and D
in a 3:3:2:2 ratio. What amount must be earned by the partnership, before any charge for
interest and salaries, so that A may receive an aggregate of P125,000 including interest,
salary and share of profits?

- 323,334

If a partner is a capitalist/industrialist partner, he gets just and equitable share as an

industrial partner and another share as a capitalist partner according to his capital
contribution.

-True

Acer and Dell formed a partnership and agreed to divide initial capital equally, even
though Acer contributed P100,000 and Dell contributed P84,000 in identifiable assets.
Under the bonus approach to adjust the capital accounts, Dell’s unidentifiable asset should
be debited for

-The correct answer is: P0

The account used when the partnership borrowed money from the partners is advances
from partners.

-True

When a partner retires from a partnership and the retiring partner is paid more than the
capital balance in her account, which of the following explains the difference?
 I: The retiring partner is receiving a bonus from the other partners.

II: The retiring partner’s goodwill is being recognized.

The correct answer is: Either I or II

Only the bonus method (not the goodwill method) of recording the admission of a new
partner into a partnership potentially results in the existing partners’ capital accounts
changing in value.

-False

The bonus method of admitting a new partner to a partnership results in greater total
assets than the goodwill method of admitting a new partner.

-False

When a new partner is admitted to a partnership, an original partner’s capital account

may be adjusted for

-His or her share of previously unrecorded intangible assets traceable to the original
partners.

When the goodwill method is applied to recognize the admission of a new partner and the
existing partners are responsible for the goodwill, the new partner’s capital account will
always be established equal to the amount of the contribution to the partnership.

-True
-A bonus can be recorded for a retiring partner only if the partnership acquires the equity
of the partner.

-True

Blau and Rubi are partners who share profits and losses in the ratio of 6:4, respectively.
On July 31, 2020, their respective capital accounts were as follows: Blau – P60,000, Rubi –
P50,000. On that date, Lind was admitted as a partner with one-third interest in capital,
and profits for an investment of P40,000. The new partnership began with total capital of
P150,000. Immediately after Lind’s admission, Blau’s capital should be

-P54,000

To record the transfer of assets and liabilities to the new corporation when new set of books
will be opened, a receivable account from the corporation will be debited. Such will be
credited once the partnership received the shares of stocks for distribution to the partners.

True

It is possible for a new partner’s capital account to be established at an amount greater

than the market value of the identifiable assets invested.

True

The condensed balance sheet of the partnership of SS and TT as of December 31, 2019
showed the following:

Total Assets P200,000 SS, Capital P80,000

Total Liabilities P 40,000 TT, Capital P80,000

-P164,000
If a new partner acquires 30 percent of an existing partner’s equity in the partnership, the
new partner is also entitled to 30% of the existing partner’s profit and loss allocation.

-False

When a new partner is admitted into a partnership and the goodwill method is used, the
goodwill is allocated to

I. All the partners in their profit-and-loss-sharing ratio

II. The old partners in their profit-and-loss-sharing ratio

-The correct answer is: II only

Partnership A has an existing capital of P70,000. Two partners currently own the
partnership and split profits 50/50. A new partner is to be admitted and will contribute net
assets with a fair value of P90,000. For no goodwill or bonus to be recognized (depending
on whichever method is used), what is the interest in the partnership granted the new
partner?

-The correct answer is: 56.25%

On August 31, 2020, the condensed balance sheet for the partnership of Eddy, Fox, and
Grimm together with their respective profit and loss sharing percentage, was as follows:

Assets, net of liabilities P320,000

Eddy, Capital P160,000

Fox, Capital 96,000

Grimm, Capital 64,000

Total P320,000

Hamm is admitted as a new partner with a 25% interest in the capital of the new
partnership for a cash payment of P140,000. Total goodwill implicit in the transaction is to
be recorded. Immediately after admission of Hamm, Eddy’s capital account balance
should be

-P210,000

On June 30, 2020, the condensed balance sheet for the partnership of Eddy, Fox, and
Grimm together with their respective profit and loss sharing percentage, was as follows:

Assets, net of liabilities P320,000

Eddy, Capital P160,000

Fox, Capital 96,000

Grimm, Capital 64,000

Total P320,000
Eddy decided to retire from the partnership and by mutual agreement is to be paid
P180,000 out of partnership funds for his interest. Total goodwill implicit in the agreement
is to be recorded. After Eddy’s retirement, what are the capital balances of the other
partners?

-The correct answer is: Fox – P108,000, Grimm – P72,000

AA and BB are partners who have capital of P600,000 and P480,000 sharing profits in the
ratio of 3:2. CC admitted as a partner upon investing P500,000 for 25% interest in the
firm, profits to be shared equally. Given the choice between goodwill and bonus method,
CC will

-The correct answer is: Prefer bonus method due to CC’s gain of P35,000

The dissolution of a partnership occurs when there is any change in the management of the
partnership business.

-The correct answer is 'False'.

Withdrawing partners from a partnership may receive a bonus or pay a bonus to

remaining partners.

-True

The admission of a new partner into a partnership cannot occur without any new assets
being invested into the partnership.

-False

In the incorporation of a partnership, when the partnership books are retained as books of
the new corporation, the fixed assets should be carried at net amount.

False
A partnership’s assets must be revalued when a partner withdraws.

-False

A bonus is recognized by existing partners at the date a new partner joins a partnership
when which of the following relationships occur?

- The correct answer is: The new partner’s contribution is greater than his/her percentage
of total partnership capital after the investment is made

If the assets of a partnership are revalued at the date of a partner’s withdrawal, there can
be no bonus recorded.

-The correct answer is 'False'.

At the date a partner withdraws from a partnership, the partners must choose to either
recognize the goodwill with respect to the withdrawing partner or they can choose to
recognize all of the partnership’s goodwill.

-The correct answer is 'False'.

In the incorporation of a partnership, the goodwill developed by the partnership is

excluded among the assets that should be transferred to the corporation.

-The correct answer is 'False'.

The goodwill and the bonus methods are two means of adjusting for differences between
the net book value and the fair market value of partnership when new partners are
admitted. Which of the following statements about these methods is correct?

-The correct answer is: The bonus method does not revalue assets to market values.
On August 31, 2020, Amy Reid withdrew from Reid, Sayle & Todd Partnership, whose
partners had an income-sharing ratio of 40%, 35%, and 25%, respectively, for a cash
payment of P121,000, despite Reid’s having a capital account balance of P100,000 on that
date. The preferable method of accounting for Reid’s withdrawal includes a

-The correct answer is: P12,250 debit to Sayle, Capital

Dunn and Grey are partners with capital account balances of P60,000 and P90,000,
respectively. They agreed to admit Zorn as a partner with one-third interest in capital and
profits, for an investment of P100,000, after revaluing the assets of Dunn and Grey.
Goodwill to the original partners should be

-The correct answer is: P50,000

Kris and Mark are partners who share profits and losses 70/30. They have capital account
balances of P170,000 and P260,000, respectively at the date they admit Frank into the
partnership. Frank invests P120,000 in the partnership for a 25% equity interest and the
bonus method is applied. What is the peso amount of bonus recognized in Frank’s capital
account at the date of admission?

-The correct answer is: P17,500

Jaime Dizon, a partner in an accounting firm, decided to withdraw from the partnership.
Dizon’s share of the partnership profits and losses was 20%. Upon withdrawing from the
partnership he was paid P74,000 in final settlement for his interest. The total of the
partner’s capital accounts before recognition of partnership goodwill prior to Dizon’s
withdrawal was P210,000. After his withdrawal the remaining partner’s capital accounts,
excluding their share of goodwill, totaled P160,000. The implied goodwill of the firm was:

-The correct answer is: P120,000

If existing partners acquire the equity of a withdrawing partner, in what manner do they
divide the equity?

-In any manner they choose

If the partners’ capital account balances have been reduced to the income-sharing ratio,
subsequent cash payments to partners during liquidation of a limited partnership may be
made in the ratio of their capital account balances.

-The correct answer is 'True'.

The distribution of safe payments may only be made after all liabilities have been paid.

-The correct answer is 'False'.

In the development of the advance plan, one of the requirement that must be satisfied is
that the partners must share income in the same ratio that they share losses.

-The correct answer is 'True'.

In the preparation of a cash priority program of a limited partnership, a loan receivable

from a partner is added to the partner’s capital account

-The correct answer is 'False'.

Which of the following is not correct with respect to an installment liquidation of a

partnership?

- The correct answer is: Distributions to partners are always made according to their profit
sharing percentages.

Partners Mary and Martha each have a P450,000 capital balance and share profits and
losses in a 3:2 ratio, respectively. Cash equals P150,000, non-cash assets equal P1,500,000,
and liabilities equal P750,000. If the non-cash assets are sold for P700,000 and both
partners agree to make up for any capital deficits with personal cash contributions, upon
liquidation Martha will receive a cash distribution of

-The correct answer is: P130,000

Gains and losses from the realization of noncash assets by limited partnership in a
liquidation are divided in the ratio of the partners’ capital contribution if there is no
income sharing plan in the partnership contract.

-The correct answer is 'True'.

A partnership has the following capital balances: A (20% of profit and losses), P150,000; B
(30% of profit and losses), P180,000; C (50% of profit and losses), P270,000. If the
partnership is to be liquidated and P45,000 becomes immediately available, who gets the
money?

- The correct answer is: A, P36,000; B, P9,000; C, P0

The loss absorption balances represent the maximum loss that the partners could absorb
without reducing their equity below zero.

-The correct answer is 'True'.

In accounting for the installment liquidation of a partnership, cash payments to partners

after all non-partner creditors’ claims have been satisfied, but before the final cash
distribution, should be according to

-The correct answer is: Safe payment computations.

The vulnerability ranking indicates the partner/partners most vulnerable to gains.

The correct answer is 'False'.

Sammy and Michael are partners of SM Partnership sharing profits and losses equally.
They decided to terminate the partnership when their capital balances are: Sammy,
P750,000; Michael, P500,000. At this time, the partnership owes Michael P200,000, as
evidenced by a promissory note. Upon liquidation, cash of P300,000 becomes available for
distribution to the partners. In the final cash distribution, what would be the respective
share of Sammy and Michael?

-The correct answer is: Sammy, P175,000; Michael (loans), P125,000

In liquidation, partners are given back the assets that they originally invested.

-The correct answer is 'False'.

A schedule prepared each time cash is to be distributed is called a/an

-The correct answer is: safe payment schedule

Partners Bee, Cee, Dee, and Gee who share profits 5:3:1:1, respectively, decide to liquidate
their partnership. Capital balances before liquidation are: Bee, P60,000; Cee, P40,000;
Dee, P30,000; Gee, P10,000. The partners agree to the following:

(a) Partnership’s computer equipment with a book value of P12,000 is to be taken over
by partner Bee at a price of P15,000.

(b) Partnership’s liabilities are to be paid off and the balance of cash on hand, P30,000 is
to be divided in a manner that will avoid the need for any possible recovery of cash from a
partner.

Compute for the following: (answers can be repeate

The correct answer is:

The cash distributed to Bee. → P0,

The cash distributed to Cee. → P10,000,

The cash distributed to Dee. → P20,000,

The cash distributed to Gee. → P0

Offsetting a partner’s loan balance against his debit capital balance is referred to as the:

-The correct answer is: Right of offset

Gains and losses on the sale of assets in liquidation are divided equally among partners.

-The correct answer is 'False'.

Because of very unprofitable operations, partners Nal, Lou, and Gee decided to dissolve the
partnership when their capital balances and profit and loss ratio were:

Nal, Capital (30%) P175,000

Lou, Capital (20%) 125,000

Gee, Capital (50%) 175,000

Total 475,000
Upon liquidation, all of the partnership’s assets are sold and sufficient cash is realized to
pay all the liabilities except one for P25,000. Gee is personally insolvent, but the others are
capable of meeting any indebtedness of the firm. By what amount would the capital of Nal
change?

-The correct answer is: P195,000 decrease

Partners Mary and Martha each have a P450,000 capital balance and share profits and
losses in a 3:2 ratio, respectively. Cash equals P150,000, non-cash assets equal P1,500,000,
and liabilities equal P750,000. If the non-cash assets are sold for P700,000 and each partner
is personally insolvent, upon liquidation Martha will receive a cash distribution of

-The correct answer is: P100,000

The doctrine of marshaling of assets

-The correct answer is: Is applicable if either the partnership is insolvent or individual
partners are insolvent.

The partner with the greatest capital account balance when a partnership liquidation
occurs is the least likely to have a deficit occur in the capital account during the liquidation.

-The correct answer is 'False'.

Bacerra, Benson and Buling is in the process of liquidating and the partners have the
following capital balances: P160,000, P176,000 and (P80,000), respectively. The partners
share all profits and losses 50%, 35%, and 15%, respectively. Buling has indicated that the
(P80,000) deficit will be covered with a forthcoming contribution. The remaining partners
have requested to receive 150,000 in cash that is available. How should this cash be
distributed?
-The correct answer is: Bacerra, P50,588; Benson, P99,412

The income and loss ratio is 50:25:25, respectively. The partners voted to dissolve their
partnership and liquidate by selling other assets in installments. P70,000 was realized on
the first cash sale of other assets with a book value of P150,000. After settlement with
creditors, all cash available was distributed to the partners.

- The correct answer is:

Cash to be distributed to Alex. → P0,

Cash to be distributed to Jay. → P30,000,

Cash to be distributed to John. → P20,000

The following is the priority sequence in which liquidation proceeds will be distributed for
a partnership:

-The correct answer is: Partnership liabilities, partnership loans, partnership capital
balances.

The RST partnership has the following capital accounts on its books at December 31,
20X4:

R, Capital P200,000

S, Capital P120,000
T, Capital P 40,000

All liabilities have been liquidated and the cash balance is zero. None of the partners have
personal assets in excess of his personal liabilities. The partners share profits and losses in
the ratio of 3:2:5. If the noncash assets are sold for P150,000, the partners should receive
as a final payment

-The correct answer is: R, P98,000, S, P52,000; T, P0

Partners Mary and Martha each have a P450,000 capital balance and share profits and
losses in a 3:2 ratio, respectively. Cash equals P150,000, non-cash assets equal P1,500,000,
and liabilities equal P750,000. If the non-cash assets are sold for P1,000,000, the change in
Martha’s capital account will be

The correct answer is: A decrease of P200,000

Which of the following statements is correct regarding a partner’s capital deficiency?

-The correct answer is: All of these statements are correct.

On December 31, 2019, the accounting records of the STU Partnership included the
following ledger account balances:

Total assets of the partnership amounted to P478,500, including P52,500 cash. The
partnership was liquidated on December 31, 2017 and Uy received P83,250 cash pursuant
to the liquidation. Sy, Ty, and Uy shared income and losses in a 5:3:2 ratio, respectively.
How much is the gain/loss on realization of assets and how much cash that will be received
by Sy?

-The correct answer is: P78,750 loss; Sy receives P59,625

The cash priority program assumes that any capital deficit balances will prove to be a total
loss to the partnership.

-The correct answer is 'False'.

Partnership capital accounts with a deficit balance must be eliminated before the
liquidation can be completed.

The correct answer is 'True'.

The Balance sheet of the partnerships Harley, Curly, and Tommy on December 31, 2019
before liquidation shows the following:

The partnership decided to liquidate as soon as possible after December 31, 2019, and all
cash on hand except of P25,000 contingency balance is to be distributed at the end of each
month until the liquidation is completed. If in the first month of realization and
distribution, the partnership pays liquidation expenses of P12,500 and Curly receives
P150,000. Compute the cash proceeds from the initial sale of other assets?

-The correct answer is: P512,500

In a partnership liquidation, the final cash distribution to the partners should be made in
accordance with the

-The correct answer is: Balances of the partners’ loan and capital accounts.

A review of assets and liabilities of the Cialis Company in bankruptcy on June 30, discloses
the following:

a. A mortgage payable of P350,000 is secured by land and buildings valued at P560,000

b. Notes Payable of P175,000 are secured by equipment valued at P140,000

c. Assets other than those referred to, have an estimated value of P157,500

d. Liabilities other than those referred to, total P420,000, which included claims with
priority of P52,500

What is the estimated deficiency to unsecured creditors?

The correct answer is: P87,500

In reporting a company that is to be liquidated, assets are shown at book value.

-The correct answer is 'False'.

An estimate of how much will be received by general unsecured creditors without priority
for each amount owed to them, expressed either in absolute amount or in percentage form.

-The correct answer is: estimated recovery percentage/dividend to general unsecured

creditors

Basis for valuation of assets in the realization and liquidation process.

-The correct answer is: net realizable

A summary of the course of operations of a business under the direction of a trustee and
involving the realization of assets and liquidation of indebtedness.

-The correct answer is: Statement of Realization and Liquidation

Appointed to take over the debtor’s properties on behalf of the creditor group.

The correct answer is: assignee/trustee

In 2020, Camel Corp. was forced into bankruptcy and begun to liquidate. The following
selected account balances were taken from its statement of affairs:

-What is the total amount available for payment of claims of unsecured creditors? →
P144,000,

What is the estimated amount of liquidating dividend per peso claim (rounded to the
nearest centavo)? → P0.80,

What is the amount of deficiency to creditors? → P36,00

The filing of a debtor’s petition under the Bankruptcy Law is an order for relief by the
bankruptcy court.

-The correct answer is 'True'.

In a bankruptcy, secured notes payable are considered liabilities with priority on a

statement of affairs.

-The correct answer is 'False'.

An accounting statement of affairs of a corporation in financial difficulty indicates that

unsecured creditors would receive P0.40 on the peso. Which one of the following assets is
most likely to realize the smallest percentage of its book value?

-The correct answer is: Goodwill.

Which of the following best illustrates the insolvency of a firm?

-The correct answer is: The firm has more liabilities than assets.

The following data were taken from the general ledger of Outgoing Company as of August
1, 2021, before the company filed for bankruptcy:

If the value of the pledged property is lesser than the obligation, what is the treatment of
the liability?

-The correct answer is: Partially secured.

Are liabilities not secured by the pledge of any assets and which have no priority upon free
assets of the person or enterprise.

-The correct answer is: Unsecured creditors without priority

Under the Bankruptcy Code, creditors having priority include specified unsecured
creditors and partially secured creditors.

The correct answer is 'False'.

The accountant of Drifting Corp. prepared a statement of affairs. Assets which there are
no claims or liens are expected to produce P1,400,000. Unsecured claims of all classes
totaled to P2,100,000. The following data are claims deemed outstanding:

1. Accrued salaries, P30,000.

2. Unrecorded note for P10,000, on which P600 of interest has accrued held by Thirdy
Co.
3. A note for P60,000 secured by P80,000 receivable, estimated to be 60% collectible
held by Jones Co.

4. A P15,000 note, on which P300 interest has accrued held by James Property with a
book value of P10,000 and a market value of P18,000 is pledged to guarantee payment of
principal and interest.

5. Unpaid income taxes of P70,000.

Answer the following: (answers can be repeated)

The correct answer is:

How much is the total net free assets? → P1,300,000,

How much is the total unsecured claims without priority? → P2,000,000,

What is the estimated recovery percentage? → 65%,

How much is the amount realized by partially secured creditors? → P55,800

The Abu Company in liquidation provided the following data:

Assets at book value P100,000

Assets at net realizable value 75,000

Liabilities at book value 85,000

Unrecorded liabilities: Interest on bank notes 250

Liquidation expenses 4,000

Assuming the assets are sold are realizable values, what is the balance of the Estate Equity
account at the end of period?

The correct answer is: P14,250

White Corporation was forced into bankruptcy and is in the process of liquidating assets
and paying claims. Unsecured claims will be paid at the rate of P0.40 on the peso. Blue
Corp. holds a P30,000 noninterest bearing note receivable from White Corp. collateralized
by an asset with a book value of P35,000 and a liquidation value of P5,000. The amount to
be realized by Blue Corp. on this note is

The correct answer is: P15,000

Itemizes the assets recovered or received from operating activities during the period.

-The correct answer is: assets acquired

Are pledged assets whose value is sufficient to pay in full the claims of the creditors in
question.
The correct answer is: assets pledged with fully secured creditors

In a Statement of Affairs, liabilities owed to partially secured creditors are shown on the
asset side of the balance sheet and as a deduction on the liability side of the statement.

The correct answer is 'False'.

If a dividend of 80% is allocable to Class 7 unsecured creditors based on an accounting

statement of affairs, it correctly may be concluded that

The correct answer is: Class 1 through 6 unsecured claims will be paid in full.

Is prepared to prove the deficiency to unsecured creditors.

-The correct answer is: Deficiency Statement

The First Family Bank loaned P4,000,000 to Belle Corporation. The loan is secured by a
land with a book value and fair market value of P5,000,000 and P3,000,000, respectively.
What amount will the bank received if unsecured creditors received 25% of their claims?

-The correct answer is: P3,250,000

In a liquidation proceeding, if the proceeds on the realization of an asset exceed the lien
against that asset, the excess is assigned to

-The correct answer is: Meet the claims of the unsecured creditors.
Are assets that have not been pledged and hence are not related to individual liability
items.

The correct answer is: free assets

A report which shows the insolvent financial position and the status of the creditors with
respect to the insolvent’s assets.

The correct answer is: Statement of Affairs

An existing partnership business cannot be a partner in a new partnership business.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 2

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Unlimited liability for the partners in a partnership is a disadvantage compared to

corporations.

Select one:

True
False

Feedback

The correct answer is 'True'.

Question 3

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Question text

A debit balance to partner’s capital account is properly called as _______?

Select one:

a.

Net loss

b.

Capital deficit or deficiency

c.

Net Income

d.
Surplus

Feedback

The correct answer is: Capital deficit or deficiency

Question 4

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A partnership is a tax-paying entity.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 5

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Separate legal personality means each partner in a partnership business is an agent and
has the authority to act for the partnership and to enter into contracts on its behalf.

Select one:

True

False

Feedback
The correct answer is 'False'.

Question 6

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Only individuals are allowed to be partners in a partnership.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 7

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Views the business as a separate and distinct entity possessing its own existence apart from
the individual partners.

Select one:

a.

Mutual agency

b.
Entity theory

c.

Proprietary theory

d.

Going concern

Feedback

The correct answer is: Entity theory

Question 8

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A limited partner plays no role in the partnership management.

Select one:

True

False

Feedback

The correct answer is 'True'.

Question 9
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Interest on loans to individual partners should be recorded in the partnership books as an

operating expense.

Select one:

True

False

Feedback

The correct answer is 'True'.

Question 10

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Question text

Under the goodwill approach, the partners are bringing something of value to the
partnership business other than tangible assets but the partners do not want to recognize
an intangible asset.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 11

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Question text
A partnership formed by two (2) or more persons having as members one (1) or more
general partners and 1 or more limited partners?

Select one:

a.

General partnership

b.

Private partnership

c.

Public partnership

d.

Limited partnership

Feedback

The correct answer is: Limited partnership

Question 12

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Question text

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

Select one:

a.

Ease of formation

b.

Unlimited liability

c.

The elimination of taxes at the entity level

d.

All of the above

Feedback

The correct answer is: Unlimited liability

Question 13
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Question text

One of the distinct characteristics of a partnership is that any partner can be held
personally liable for all debts of the business.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 14

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Partnership may be created by oral agreement between two or more persons, but not for
implied agreement.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 15

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Determine the valuation of the following by choosing the best answer based on the choices
given on the right side. Answer correctly. Note: answers can be repeated.

Noncash property donated by an individual in the partnership business.

Answer 1

based on current exchange rate

Cash denominated in foreign currency.

Answer 2

based on current exchange rate

Cash investments.

Answer 3

face value

Cash in bank under receivership.

Answer 4

estimated recoverable amount

Accounts receivable of a sole proprietorship forwarded to the partnership.

Answer 5

net amount (net of allowance for doubtful accounts)

Fixed assets of a sole proprietorship.

Answer 6

net amount or cost less accumulated depreciation

Liabilities assumed by the partnership.

Answer 7

present value of the remaining cash flows

Feedback

The correct answer is: Noncash property donated by an individual in the partnership
business. → agreed value, Cash denominated in foreign currency. → based on current
exchange rate, Cash investments. → face value, Cash in bank under receivership. →
estimated recoverable amount, Accounts receivable of a sole proprietorship forwarded to
the partnership. → gross amount, Fixed assets of a sole proprietorship. → net amount or
cost less accumulated depreciation, Liabilities assumed by the partnership. → present
value of the remaining cash flows

Question 16

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Question text

Looks at the entity through the eyes of the owner.

Select one:

a.

Mutual agency

b.

Entity theory

c.

Going concern

d.

Proprietary theory

Feedback

The correct answer is: Proprietary theory

Question 17

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Question text

Match the following questions/statements (found on the left side) with the answers for
selection (found on the right side):
A claim against the net assets of the partnership as shown by the balance in the partner’s
capital accounts.

Answer 1

partner’s capital interest

These are entities that do not have stock or do not issue bonds in the capital market
therefore no public accountability but will publish general-purpose financial statements for
external users.

Answer 2

small and medium-sized entities

Refers to the written agreement between or among the partners that governs the
formation, operation and dissolution of the partnership. Answer 3

Articles of Partnership

Should be prepared when a partner contributes “industry” and there are no values agreed
upon.

Answer 4

memorandum entry

If there is no specification as to what valuation approach is use in recording initial

investment, the ___________ would be presented. Answer 5
bonus approach

Feedback

The correct answer is: A claim against the net assets of the partnership as shown by the
balance in the partner’s capital accounts. → partner’s capital interest, These are entities
that do not have stock or do not issue bonds in the capital market therefore no public
accountability but will publish general-purpose financial statements for external users. →
small and medium-sized entities, Refers to the written agreement between or among the
partners that governs the formation, operation and dissolution of the partnership. →
Articles of Partnership, Should be prepared when a partner contributes “industry” and
there are no values agreed upon. → memorandum entry, If there is no specification as to
what valuation approach is use in recording initial investment, the ___________ would be
presented. → bonus approach

Question 18

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Question text

If Partnership AB enters into a partnership business with Diaz Company to form ABD
Partnership and the books of Partnership AB will be retained, there is a need for
Partnership AB to do the revaluation of assets and liabilities and close the real accounts in
order for Partnership AB to be converted to ABD Partnership.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 19
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In the assignment of partner’s interest, the assignee shall receive the same rights and
privileges as accorded to the partner by the partnership business.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 20

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In accounting for partnership valuation, in case there is a conflict between agreed value
and fair value, fair value prevails.

Select one:

True

False

Question 1
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Question text

Find the best answer for the following questions: (answers can be repeated)

If it is not clear what capital balances shall be used in the sharing of profit or losses, it is
presumed to be based on _____________?

Answer 1

average capital

The fairest basis for allocating partnership profit because it reflect the capital actually
available for use by the partnership during the year.

Answer 2

beginning capital balance

This method specifies that investments and withdrawals are made at the beginning of the
month if made before the middle of the month and are to be considered as made at the
beginning of the following month if made after the middle of the month.

Answer 3

peso-day approach

These are omissions from and other misstatements of the entity’s financial statements for
one or more prior periods that are discovered in the current period.
Answer 4

prior-period errors

If there is no agreement between partners as to the sharing of losses, the basis of the
sharing of the loss is based on the __________?

Answer 5

original capital contribution

Feedback

The correct answer is:

If it is not clear what capital balances shall be used in the sharing of profit or losses, it is
presumed to be based on _____________? → original capital contribution,

The fairest basis for allocating partnership profit because it reflect the capital actually
available for use by the partnership during the year. → average capital,

This method specifies that investments and withdrawals are made at the beginning of the
month if made before the middle of the month and are to be considered as made at the
beginning of the following month if made after the middle of the month. → peso-month
approach,

These are omissions from and other misstatements of the entity’s financial statements for
one or more prior periods that are discovered in the current period. → prior-period errors,

If there is no agreement between partners as to the sharing of losses, the basis of the
sharing of the loss is based on the __________? → profit-sharing ratio
Question 2

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According to the guidelines in computing average capital, what type of withdrawal or

drawing accounts that are recognized or included in the computation of average capital?

Select one:

a.

average temporary withdrawals

b.

capital/permanent withdrawals

c.

temporary withdrawals

d.

large withdrawals
Feedback

The correct answer is: capital/permanent withdrawals

Question 3

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If a partner is a capitalist/industrialist partner, he gets just and equitable share as an

industrial partner and another share as a capitalist partner according to his capital
contribution.

Select one:

True

False

Feedback

The correct answer is 'True'.

Question 4

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An industrial-capitalist partner is liable for the losses of the partnership in the same
proportion as his profit sharing ratio even though there is no loss sharing agreement but
has a profit sharing agreement.

Select one:

True

False
Feedback

The correct answer is 'True'.

Question 5

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The profit and loss is subsequently closed to _________________.

Select one:

a.

Other comprehensive income.

b.

income summary.

c.

partner’s capital accounts.

d.
partner’s drawing accounts.

Feedback

The correct answer is: partner’s capital accounts.

Question 6

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If the partnership agreement provides for interest on capital accounts, this provision must
be honored regardless of whether operations yielded profits or not.

Select one:

True

False

Feedback

The correct answer is 'True'.

Question 7

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The technique used in sharing profits and/or losses when the capital and service
contribution of the partners are unequal is based on __________.

Select one:
a.

average contribution.

b.

arbitrary ratio.

c.

original contribution.

d.

equal distribution of profits and/or losses.

Feedback

The correct answer is: arbitrary ratio.

Question 8

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It is possible to record salaries and interest allowances as part of expense items rather than
as distribution or allocation of net income.

Select one:
True

False

Feedback

The correct answer is 'True'.

Question 9

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Even when the partnership business operates at a loss, the bonus provision still applies.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 10

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If there is no specified profit sharing for an industrial partner, he shall receive a share
equal to the share of a capitalist partner having the highest share.

Select one:

True

False

Feedback
The correct answer is 'False'.

Question 11

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The allocation of profits to a partner on the basis of performance is frequently referred to

as Answer

Salary

Feedback

The correct answer is: bonus

Question 12

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In normal circumstances, bonus to the managing partner shall be given even when the
results of operations of the partnership are unfavorable.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 13

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Question text

The account used to record payments of partner’s personal expenses using partnership
assets.

Select one:

a.

Advances from Partners/Due to Partners

b.

Advances to Partners/Due from Partners

c.

Salaries and Wages Expense

d.

Drawing or capital account of the partner

Feedback

The correct answer is: Drawing or capital account of the partner

Question 14

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A purely industrial partner shall receive share of profits and losses before the capitalist
partners shall divide the profits.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 15

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When the partnership incurs losses, interest on capital balances may be omitted provided
that it is clearly provided in the partnership contract.

Select one:

True

False

Feedback

The correct answer is 'True'.

Question 16

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Question text

This is received by a partner or partners who devote time through rendering of services to
the partnership business.

Select one:

a.

Bonus

b.

Salary allowances

c.

Interest allowances

d.

Share in the goodwill

Feedback

The correct answer is: Salary allowances

Question 17

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The provision for salaries and interest in the partnership agreement are called Answer

partnersip on agreement

Feedback

The correct answer is: allowances

Question 18

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If there is an industrial partner in a partnership, the capitalist partners should receive

their share of the profits in proportion to their capital contribution first before the
industrial partner.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 19

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In the absence of profit sharing ratio agreement, profits shall be divided among the
partners ___________?

Select one:

a.

Equally.

b.

Based on arbitrary ratio.

c.

in proportion to their respective capital contributions.

d.

Based on average capital.

Feedback

The correct answer is: in proportion to their respective capital contributions.

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Question text
For subsequent changes in methods to allocate net income or net loss, the
increases/decreases as results of revaluation of assets to their current values at the time of
the change shall be divided among partners based on __________.

Select one:

a.

new profit/loss sharing ratio.

b.

average capital contribution.

c.

old profit/loss sharing ratio.

d.

original capital contribution.

Feedback

The correct answer is: old profit/loss sharing ratio.

Question 21

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Interest on partners’ capital is normally treated as an expense of the partnership.

Select one:

True

False

Feedback

The correct answer is 'False'

Recognition of decreases or write-downs in net asset revaluations is permissible by GAAP

even though they are not realized.

Select one:

True

False

Feedback

The correct answer is 'True'.

Question 2

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If the new partner agrees to contribute cash greater than his/her agreed capital/capital
interest, there is bonus to be given to the old partners.

Select one:

True

False

Feedback

The correct answer is 'True'.

Question 3

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Question text

Of the two (2) methods of valuation of assets and liabilities when there are changes in the
ownership of the partnership, revaluation approach (or goodwill procedure) is the
acceptable method according to GAAP.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 4

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The following are the causes of dissolution: admission of a new partner, withdrawal or
retirement of a partner, death or incapacity of a partner, and incorporation of a
partnership.
Select one:

True

False

Feedback

The correct answer is 'True'.

Question 5

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In the admission of a new partner in the partnership business, consent from at least one of
the old partners is sufficient enough to proceed with the admittance of the new partner.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 6

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Question text

If a new partner acquires 30% of an existing partner’s equity in the partnership, the new
partner is also entitled to 30% of the existing partner’s profit and loss allocation.
Select one:

True

False

Feedback

The correct answer is 'False'.

Question 7

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An assignee does not obtain the right to share in management of the partnership or to
review transactions and records of the partnership.

Select one:

True

False

Feedback

The correct answer is 'True'.

Question 8

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Absence of revaluation (or bonus/BV approach) will be eventually advantageous to the old
partners when profit and loss interest is greater than capital interest.

Select one:
True

False

Feedback

The correct answer is 'False'.

Question 9

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Question text

Answer the following:

The change in the relation of the partners caused by any partner ceasing to be associated in
the carrying on of the business affairs is

Answer 1

partnership dissolution

The methods/ways in the admission of a new partner are by purchase of interest and by

Answer 2

investment of assets

This theory does not view partnership as a distinct entity, but rather, as a group of
individual investors.

Answer 3
proprietary

Refers to a claim against the net assets of the partnership.

Answer 4

partner's capital interest

A valuation approach that retains the historical cost carrying value of a firm.

Answer 5

absence of revaluation/bonus/book value approach

The absence of revaluation approach recognizes decreases or write-downs in the value of

the assets and prevents the recognition of asset appreciation. This is under what specific
accounting principle?

Answer 6

conservatism (prudence)

Feedback

The correct answer is:

The change in the relation of the partners caused by any partner ceasing to be associated in
the carrying on of the business affairs is → partnership dissolution,
The methods/ways in the admission of a new partner are by purchase of interest and by →
investment of assets,

This theory does not view partnership as a distinct entity, but rather, as a group of
individual investors. → proprietary,

Refers to a claim against the net assets of the partnership. → partner's capital interest,

A valuation approach that retains the historical cost carrying value of a firm. → absence
of revaluation/bonus/book value approach,

The absence of revaluation approach recognizes decreases or write-downs in the value of

the assets and prevents the recognition of asset appreciation. This is under what specific
accounting principle? → conservatism (prudence)

Question 10

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Question text

A partner’s capital interest and his/her interest in income and losses subsequently reported
in the partnership generally mean one and the same thing.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 11

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Determines how the partner’s capital interest will increase or decrease as a result of
subsequent operations.

Select one:

a.

Partner’s additional investments and withdrawals.

b.

Partner’s capital interest.

c.

Partner’s interest in profit and loss.

d.

Partner’s average capital contribution.

Feedback

The correct answer is: Partner’s interest in profit and loss.

Question 12

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Question text

In relation to valuation of assets and liabilities on dissolution problems, the number one
rule is ____________.

Select one:

a.

If there is an agreement among partners that revaluation is allowed, then the partners shall
liquidate all the assets and terminate the business.

b.

If there is an agreement among partners that revaluation is allowed, then reflect the
necessary adjustments after dissolution.

c.

If there is an agreement among partners that revaluation is allowed, then reflect the
necessary adjustments before dissolution.
d.

Because revaluation (goodwill) approach is not in accordance with GAAP, then it should
not be followed at all times.

Feedback

The correct answer is: If there is an agreement among partners that revaluation is allowed,
then reflect the necessary adjustments before dissolution.

Question 13

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Question text

A partner can withdraw from the partnership business by selling his/her equity interest to
the government.

Select one:

True

False

Feedback

The correct answer is 'True'.

Question 14

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Question text

The bonus approach generally follows the existing book values should not be adjusted to
current values unless adjustments would have otherwise been allowed by GAAP. What is
the situation where GAAP allows adjustments?
Select one:

a.

If assets are undervalued per books, it has to be appreciated.

b.

If assets are overvalued per books, it has to be appreciated.

c.

If assets are undervalued per books, it has to be depreciated.

d.

If assets are overvalued per books, it has to be depreciated.

Feedback

The correct answer is: If assets are overvalued per books, it has to be depreciated.

Question 15

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Question text
An assignee is treated like a partner in the partnership, thus he/she can be a partner in the
real sense of the word.

Select one:

True

False

Feedback

The correct answer is 'False'.

Question 1

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The manner of distributing cash to partners in the liquidation process has the end result of
bringing the capital balances into the profit and loss ratio.

Select one:

True

False

Feedback

The correct answer is 'True'.

Question 2

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A historical statement prepared on partnership liquidation is the Answer

statement of realization and liquidation

Feedback

The correct answer is: Statement of Realization and Liquidation

Question 3

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Question text

The excess of a partner’s share in losses over the partner’s capital credit balance is called
Answer

Capital deficiency

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The correct answer is: capital deficiency

Question 4

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Personal creditors have first claim on partnership assets.

Select one:

True
False

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The correct answer is 'False'.

Question 5

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The conversion of non-cash assets into cash is referred to as Answer

liquidation

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The correct answer is: realization

Question 6

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A method wherein the realization of non-cash assets is accomplished over an extended

period of time.

Answer:

installment method of partnership liquidation

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The correct answer is: installment

Question 7

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Question text

The assets of the general partnership shall be applied firstly to ____________.

Select one:

a.

the partner as to capital contribution

b.

to creditors other than partners

c.

the partner as to loans

d.

partner as to profits

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The correct answer is: to creditors other than partners

Question 8
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In the payment to partners, loans payable to partners should be prioritized.

Select one:

True

False

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The correct answer is 'True'.

Question 9

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This is the winding up of the affairs of the partnership business.

Answer:

dissolution

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The correct answer is: liquidation

Question 10

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A doctrine that is applied when the partnership and/or one of the partners are insolvent
wherein the provision calls for the contribution of personal assets to a liquidating
partnership.
Answer:

ARTICLE 1797

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The correct answer is: marshalling of assets

Question 11

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Right of offset is a legal right of a partner to apply part or all of his loan account balance
against his capital deficiency.

Select one:

True

False

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The correct answer is 'True'.

Question 12

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If a partner is insolvent, his personal properties shall be distributed firstly to the

partnership creditors.

Select one:
True

False

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The correct answer is 'False'.

Question 13

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If a partnership has only non-cash assets, all liabilities have been properly disbursed, and
no additional liquidation expenses are expected, the maximum potential loss to the
partnership in the liquidation process is the estimated proceeds from the sale of the assets
less the book value of the non-ash assets.

Select one:

True

False

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The correct answer is 'False'.

Question 14

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These refer to costs incurred during the liquidation process such as costs to complete
inventory, sales commissions and shipping costs related to disposal of inventory, escrow
and title transfer fees associated with the sale of real property and costs of removing
equipment.

Answer:
Closing costs

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The correct answer is: liquidation expenses

Question 15

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Winding up the affairs of a business is a phase of partnership operations which begins after
dissolution and ends with the termination of partnership activities.

Select one:

True

False

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The correct answer is 'True

Which of the following statements is correct with regard to a cash distribution plan
prepared for partnership liquidation?

a.

Cash distribution plans are not prepared for a partnership liquidation

b.
It informs the partners when cash distributions will be made

c.

It guarantees to partners the amounts of distributions that will be made

d.

It informs the partners of the allocation that will occur when cash distributions are made

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The correct answer is:

It informs the partners of the allocation that will occur when cash distributions are made

Question 2

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Which of the following is an assumption an accountant would make when assisting with
partnership installment liquidation?

a.

That partners have sufficient resources to make contributions should a deficit capital
account occur
b.

That the partners will all receive equal amounts of cash when distributions are made

c.

That the business will not generate a positive cash flow during the remainder of its life

d.

That remaining assets can be sold at book value

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The correct answer is:

That the business will not generate a positive cash flow during the remainder of its life

Question 3

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Question text

In a schedule of assumed loss absorptions

a.

the most vulnerable partner is eliminated first.

b.

it is necessary to have a cash distribution plan first.

c.

the least vulnerable partner is eliminated first.

d.

the partner with lowest loss absorption is eliminated last.

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The correct answer is:

the most vulnerable partner is eliminated first.

Question 4

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Question text

Which of the following describes partnership installment liquidation?

a.

The sale of all noncash assets and payment of liabilities before a single distribution to
partners

b.

A series of interim distributions to partners while the sale of noncash assets and the
payment of liabilities is occurring

c.

Keeping the partnership assets and liabilities separate from the partners’ personal assets
and liabilities

d.

The combining of a partner’s capital account with loans to/from the partnership

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The correct answer is:

A series of interim distributions to partners while the sale of noncash assets and the
payment of liabilities is occurring
Question 5

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Question text

Which statement is true concerning the safe payment and cash distribution plan
approaches to liquidation?

a.

The safe payment approach determines how the current available cash is distributed, but
not future payments.

b.

The safe payment approach is more conservative than the cash distribution plan.

c.

Both approaches are used in simple liquidations.

d.

The safe payment approach uses the right of offset, but the cash distribution plan does not.

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The correct answer is:

The safe payment approach determines how the current available cash is distributed, but
not future payments.

Question 6

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The first step in preparing an advance cash distribution plan is to compute the amount of
cash each partner is to receive as it becomes available for distribution.

Select one:

True

False

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The correct answer is 'False'.

Question 7

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In partnership liquidations, what are safe payments?

a.
The amounts of distributions that can be made to the partners, after all non-cash assets
have been adjusted to fair market value.

b.

The amounts of distributions that can be made to the partners with assurance that such
amounts will not have to be returned to the partnership.

c.

All the above are examples of the safe payments concept.

d.

The amounts of distributions that can be made to the partners, after all creditors have been
paid in full.

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The correct answer is:

The amounts of distributions that can be made to the partners with assurance that such
amounts will not have to be returned to the partnership.

Question 8

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Question text
Which partner is considered the most vulnerable as a result of a computation of
vulnerability rankings?

a.

The partner with the highest vulnerability ratio, who also has the lowest loss absorption
potential.

b.

The partner with the highest vulnerability ranking, who also has the highest loss
absorption potential.

c.

The partner with the lowest vulnerability ranking, who also has the highest loss absorption
potential.

d.

The partner with the lowest vulnerability ranking, who also has the lowest loss absorption
potential.

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The correct answer is:

The partner with the lowest vulnerability ranking, who also has the lowest loss absorption
potential.

Question 9

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Why might a particular partner have a deficit occur in his/her capital account during a
partnership liquidation?

a.

The partner with the deficit may have made the greatest withdrawals from the partnership

b.

The partner with the deficit may have the smallest profit and loss residual ratio

c.

The partner with the deficit may have the greatest profit and loss residual ratio

d.
Both a. and c. are correct

e.

Both a. and b. are correct

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The correct answer is:

Both a. and c. are correct

Question 10

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If a partner has a deficit capital balance, the partner must contribute personal assets to
cover the deficit balance.

Select one:

True

False

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The correct answer is 'False'.

Question 11

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Question text
The rank order is for claims against a bankrupt partner of

I. Those owing to partners by way of contribution

II. Those owing to separate creditors

III. Those owing to partnership creditors

a.

II first; I second and III third.

b.

I first; III second and II third.

c.

III first; II second and I third.

d.

II first; III second and I third.

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The correct answer is:

II first; III second and I third.

Question 12

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Question text

Which of the following is not correct with regard to a partnership Statement of Realization
and Liquidation?

a.

Residual profit and loss ratios are typically used to make allocations to partners' capital
accounts

b.

Gains and losses are allocated to capital accounts

c.

Balance sheet and income statement accounts appear on the statement

d.

The statement details all business transactions during the partnership liquidation

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The correct answer is:

Balance sheet and income statement accounts appear on the statement

Question 13

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Question text

When making a distribution to partners during partnership liquidation, the partner who
should receive the first allocation of the distribution is the one who has which of the
following?

a.

The largest capital account balance

b.

The smallest loss absorption power

c.
The smallest capital account balance

d.

The largest loss absorption power

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The correct answer is:

The largest loss absorption power

Question 14

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Which of the following assumptions is made when a schedule of safe payments is prepared?

a.

Partnership capital will earn a 10 percent rate of return

b.

All of the noncash assets will be sold for book value

c.

Capital account deficits will not result in additional investments into the partnership

d.

Profits and losses are shared equally among the partners

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The correct answer is:

Capital account deficits will not result in additional investments into the partnership

Question 15

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Question text

The partner with the greatest residual profit and loss ratio may be the partner with a
deficit capital account during partnership liquidation.

Select one:

True

False

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The correct answer is 'True