Quiz 2 - Unit I – Partnership Formation and Operation

Lesson 3 – Partnership Operation

I – Modified True or False: On your answer sheet, write “ True” if the statement is correct and if the statement is
incorrect, write the word or group of words that makes the statement false.

1. An industrial partner shares in profits as well as in losses.

2. A net loss results when the salary and interest allocations for the partners exceed net income for the period.
3. Bonus is allowed only when there is sufficient net income.
4. A credit balance in Income and Expense Summary account means net income.
5. If only the division of profits is agreed upon, but the results of operation is a net loss, the division of net loss will
follow the division of profits.
6. The partnership profit and loss ratio is always the same as the partner’s capital contribution ratio.
7. In the absence of the loss agreement, losses shall not be divided among the partners.
8. No bonus is allocated to any partner when the partnership incurred loss during the period.
9. As a rule, partner’s salary and interest on capital are treated as ordinary operating expense.
10. A professional partnership would be entitled to tax exemption only if it engage purely in the practice of profession.
11. An industrial partner is not exempted from sharing in the loss of the partnership if he is also a capitalist partner.
12. All partnerships are taxed on their income as corporations.
13. if part of the agreed profit and loss distribution is the allocation of bonus to the managing partner, such allocation
shall be given in spite of the insufficiency of the partnership net income.
14. if part of the agreed profit and loss distribution is the allocation of interest on capital balances, such allocation
shall be given in spite of the insufficiency of the partnership net income.
15. Interest on the partner’s capital is a profit sharing device.

II – Multiple Choice: On your answer sheet, write the letter of the correct answer.

1. This average method should be used in the absence of an agreement of profit or loss:
a) simple average c) weighted average
b) basic capital average d) not given

2. This allowance for profit distribution is granted only if there is profit?

a) Salary b) interest c) Bonus a) all of the above

3. Interest on the money borrowed by the partner from the partnership shall be treated as:
a) profit sharing device c) operating expense
b) finance cost d) revenue

4. Which of the following is not considered legitimate expense of a partnership?

a) supplies used by partners’ offices
b) depreciation on assets contributed to the partnership by partners.
c) interest paid to partners based on the amount of invested capital
d) interest paid on the money borrowed from the partners.

5. As a general rule, in computing the partner’s average capital, the temporary withdrawals are:
a) regarded in the computation of the average capital
b) not considered in the computation of average capital
c) considered in the computation of average capital if the drawing is made in anticipation for accruing
profit.
d) all of the above

6. Which of the following statements about partnership financial statement is true?

a) Details of the distribution of net income are shown in the owners’ equity statement.
b) The distribution of the net income is shown in the statement of financial position.
c) Only the total of all partner capital balances is shown on the statement of financial position.
d) the owners’ equity statement is called partner’ capital statement.

This study source was downloaded by 100000843340543 from CourseHero.com on 09-22-2022 08:44:06 GMT -05:00

https://www.coursehero.com/file/105004613/Quiz-2-Lesson-3docx/
 7. This method of profit sharing relative to capital balances is discourages additional investments during the
accounting period.

a) original capital balances c) beginning capital balance of the fiscal year

b) average capital balance of the year d) ending capital balance of the fiscal year

8. If the primary consideration is the partner’s capital contribution, the most equitable profit and loss distribution is
made on the basis of:
a) equal share c) beginning capital balances
b) ending capital balances d) weighted average capital balances

9. This item is not treated as operating expense of the partnership:

a) salaries of manager employed by the partnership c) Bonus to the managing partner
b) interest on the partnership outstanding loan d) Office supplies used

10. A 1:3:2 ratio is the same as:

a) 10%: 30%:20% b) 1/10; 3/10: 2/10 c) 1/6:3/6:2/6 d) 20%: 50%: 30%

11. Closing entries of partnership includes entries to:

a) close income and expense accounts to the income summary account and then close the profits or losses
to the capital accounts.
b) close the profits or losses and dividends declared accounts to retained earnings
c) record distribution of cash to the partners
d) eliminate the capital accounts and record the distribution of assets to partners to effect the partnership
termination and liquidation.

12. Which of the following is not a component of the formula used to distribute profit?
a) salary allowances to the managing partners
b) interest on the average capital investments
c) interest on notes payable to partners
d) after all other allocations, the remainder divided according to the profit and loss sharing ratio.

13. Which of the following distributions would be made last in dividing profits to the partners when interest on capital
balances and salary allowances are involved?

a) salary allowances b) interest on capital balances c) equally d) Specified ratio

14. In conformity with the GAAP, the following are treated as an income-sharing device, except:

a) partners’ salary c) partners’ interest on capital contribution

b) partner’s bonus d) partners’ interest on loans to partnership.

15. What is true regarding partnership operation?

a) Interest allowance to partners as means of distributing profit is recorded by debiting interest expense.
b) When partners receive varying amount of share in the net income or loss of the partnership, the method
used is equally.
c) A bonus agreement is applicable only when the results of operation is a gain. It is unenforceable when the
result of operation is a loss.
d) Salary and interest allowances shall be allowed to partners only when the income is sufficient to cover
salary and interest allowances.

This study source was downloaded by 100000843340543 from CourseHero.com on 09-22-2022 08:44:06 GMT -05:00

https://www.coursehero.com/file/105004613/Quiz-2-Lesson-3docx/
 III –Practice:
The capital accounts of Blake and Drake partners on December 31, 2021 are shown below:

Blake Capital: Drake Capital:

Debit Credit Debit Credit
1/1 P 72,000 1/1 P 108,000
4/1 P15,000 2/1 P 16,000
6/1 20,000 5/1 35,000
9/1 22,000 10/1 25,000

For 1 –7:Determine the share of each partner if Net income for the year is P 106,000 under the following
independent agreement:

1. the profit is divided Blake and Drake on the basis of 1:2 ratio

2 . the profit is divided on the basis of beginning capital ratio:

3. the P/l ratio is based on ending capital ratio

4. the P/l ratio is based on simple average capital:

5. P/l ratio is based on weighted average capital:

6. Assume Blake gets 25% bonus on income before bonus and the balance equally.

7. Assume Blake gets 25% on net income after bonus and balance divided 1:3 ratio

8. A and B share in the partnership’s profit in the ratio of 2:1, respectively. A received P 245,000 as his share. How
much did B receive as his share?

a) P 367,000 b) P 245,000 c) P 122,500 d) P 122,000

9. C, D and E share in the partnership’s profit and losses in the ratio of 3:4:5. During the year, the partnership’s
distributive income is P 1,500,000. What is the amount of E’s share from the partnership’s income?

a) P 750,000 b) P 625,000 c) P 500,000 d) P 125,000

10. A partnership showed the following account balances: sales, P 70,000; cost of sales, P 40,000; operating
expenses, P 10,000; partners’ salaries P 13,000; interest paid to banks, P 2,000 and partners’ drawings, P 8,000.
The partnership profit (loss) is:

a) P 20,000 b) P 18,000 c) P 5,000 d) P (3,000)

11. If a partnership has a profit of P 44,000 and Partner Allen is to be allocated a bonus of 10% of profit after the
bonus, Allen’s bonus would be:
a) P 4,400 b) P 4,000 c) P 3,600 d) not given

12. After closing the nominal accounts on December 31, 2021, the Income Summary account shows a debit balance
of P 112,000. If partners M, N and L have income ratios of 6:5:3, respectively, how much is the share of N from
the net income (loss) of the partnership?

a) (P33,600) b) P 33,600 c) (P 24,000) d) P 24,000

This study source was downloaded by 100000843340543 from CourseHero.com on 09-22-2022 08:44:06 GMT -05:00

https://www.coursehero.com/file/105004613/Quiz-2-Lesson-3docx/
 13. Refer to no. 12: prepare journal entry to close Income Summary account.

Date Particulars PR Debit Credit

14. RR and SS have the following profit and loss agreement: Salaries of P 30,000 and P 45,000 for RR and SS,
respectively; a bonus to RR of 10% of profit after salaries and bonus; and interest of 10% on average capital
balances of P 20,000, P 35,000 for RR and SS, respectively. One-third of any remaining profit is allocated to
RR and the balance to SS. If the partnership had a profit of P 102,500, how much should be allocated to
SS?

a) P 41,000 b) P 44,250 c) P 41,167 d) P 61,500

15. After closing the nominal accounts on December 31, 2021, the Income Summary account shows a credit balance
of P 200,000. If partners D, E and F have profit and loss ratios of 50%, 30% and 20%, respectively, prepare the
journal entry to close Income Summary account.

Date Particulars PR Debit Credit

End

This study source was downloaded by 100000843340543 from CourseHero.com on 09-22-2022 08:44:06 GMT -05:00

https://www.coursehero.com/file/105004613/Quiz-2-Lesson-3docx/
 Accounting 5
QUIZ NO. 2
ANSWER SHEET

Name: __________________
Block: __________________

I – Modified True or False II - Multiple Choice

1. 1.
2. 2.
3. 3.
4. 4.
5. 5.
6. 6.
7. 7.
8. 8.
9. 9.
10. 10.
11. 11.
12. 12.
13. 13.
14. 14.
15. 15.

This study source was downloaded by 100000843340543 from CourseHero.com on 09-22-2022 08:44:06 GMT -05:00

https://www.coursehero.com/file/105004613/Quiz-2-Lesson-3docx/
Powered by TCPDF (www.tcpdf.org)