Theories Chapter 1 - 5

Theories
Chapter 1
1. The Revised Uniform Partnership Act defines a partnership as

a. Any association of two or more persons or entities.
b. An association of two or more persons to carry on as co-owners a business for profit.
c. A separate legal entity for most legal purposes.
d. An entity created by following statutory requirements. (Gleim)
Answer: B
REQUIRED: The definition of a partnership.
DISCUSSION: (B) A partnership, as defined by the Revised Uniform Partnership Act, is “the
association of two or more persons to carry on as co-owners a business for profit.”
Answer (A) is incorrect because a partnership must be a profit-oriented business arrangement
among co-owners. Answer (C) is incorrect because a partnership is viewed for most legal
purposes as a group of individuals rather than a separate entity. Answer (D) is incorrect
because no statutory requirements need be met to create a general partnership. A
partnership may arise regardless of the intent of the parties when an arrangement satisfies the
definition. However, specific statutory requirements must be followed to create a limited
partnership.
Source: Comprehensive Reviewer and Test Bank in Practical Accounting 2 by Hilario G. Tan
2. The partnership agreement is an express contract among the partners (the owners of the
business). Such an agreement generally does not include
a. A limitation on a partner’s liability to creditors.
b. The rights and duties of the partners.
c. The allocation of income between the partners.
d. The rights and duties of the partners in the event of partnership dissolution. (Gleim)
Answer: A
REQUIRED: The item not usually included in the partnership agreement.
DISCUSSION: (A) Unlike corporations, general partnerships do not insulate a partner from
liability to creditors. Each general partner has unlimited liability for partnership debts. The
partners may agree among themselves to limit a partner’s liability, but such a provision cannot
limit direct liability to creditors.
Answers (B), (C), and (D) are incorrect because each is typically found in the agreement
among partners that establishes the partnership. A written agreement is not necessary for the
creation of a partnership, but such an agreement is commonly used to define the rights and
duties among the partners.
3. A partnership records a partner’s 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 partner’s book value of the assets invested.
d. Any of the above, depending upon the partnership agreement. (RPCPA 0598)
Answer: D
4. When property other than cash is invested in a partnership, at what amount should the
noncash property be credited to the contributing partner’s capital account?
a. Fair value at the date of recognition.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis. (AICPA 0594 F-35)
Answer: A
REQUIRED: The credit to the contributing partner’s capital account when noncash assets are
invested.
DISCUSSION: (A) The capital account should be credited for the current fair vaue of the
assets at the date of the contribution. This approach is consistent with APB 29, which states
that “in general, accounting for nonmonetary transactions should be based on the fair values
of the assets (or services) involved.” APB 21, specifically applies this principle to nonmonetary
assets received in nonreciprocal transfers.
Answers (B), (C), and (D) are incorrect because fair value best reflects the economic
substance of the transaction.
5. When property other than cash is invested in a partnership, at what amount should the
noncash property be credited to the contributing partner’s capital account?
a. Fair value at the date of contribution.
b. Contributing partner’s original cost.
c. Assessed valuation for property tax purposes.
d. Contributing partner’s tax basis. (AICPA 0594 F-35)
Answer: A
REQUIRED: The credit to the contributing partner’s capital account when noncash assets are
invested.
DISCUSSION: (A) The capital account should be credited for the current fair value of the
assets at the date of the contribution.
Answers (B), (C), and (D) are incorrect because fair value best reflects the economic
substance of the transaction.
6. Which of the following is not an area where there are differences when comparing partnerships and corporations?
a. ease of formation
b. level of owner legal liability
c. ease of ownership transferability
d. All of the above areas where partnerships and corporations differ
Answer: D
Source: Dayag, 2019
7. Which one of the following is a characteristic of a general partnership?

a. All partners agree to legal agreements or they are nonbinding
b. Each general partner is personally liable for all the partnership obligations
c. Each partner is entitled to reasonable remuneration for conducting partnership business
d. Patrnership income is separately taxed.
Answer: B
Source: Dayag, 2019
8. Which of the following occurs every time a new partner is admitted to a partnership or an existing partner leaves the
partnership?
a. Dissolution
b. Termination
c. Dissolution and Termination
d. None of the above
Answer: A
Source: Dayag, 2019
9. In a limited partnership, the entity ceases to legally exist when
a. an existing partner retires or dies
b. a new partner enters the partnership
c. a limited partner transfers his/her interest
d. a general partner is no longer present
Answer: D
Source: Dayag, 2019
10. What equity theory is applicable for partnerships?

a. Proprietary theory
b. Entity theory
c. A mix of proprietary and entity theory
d. partnership theory
Answer: C
Source: Dayag, 2019
Chapter 2
1. Which of the following is false regarding the measurement of partnership income.
a. Partnerships employ the same revenue and expense recognition criteria as corporation
b. Salaries to partners are deducted as expense in measuring partnership income.
c. Interest allocated to partners are not deducted as expense in measuring partnership income.
d. Partnership do not report income tax expense.
Answer: B
Salaries to partners are not treated as expense and not deducted in measuring partnership income. and
salaries are automatically allowed even when losses occurred to the partnership.
CPA reviewer Advance Accounting 2019-Dayag Theories 1-4
2. A partnership’s income-sharing ratio
a. applies to partnership income after salaries and interest are deducted.
b. applies to partnership income before salaries are deducted but after interest is deducted.
c. applies to partnership income after salaries are deducted but before interest is deducted.
d. applies to partnership income before both salaries and interest are deducted.
Answer: B
Partnership income is defined as partnership income before salaries and interest. and under the use of
interest allowance to partners’ capital account in order to achieve a reasonable profit distribution has no effect on the
computation of the net income or loss of the partnership.
3. Partnership net income is defined as
a. the interest allocation to the partner ,based on weighted average invested capital
b. partnership income after deducting salaries and interest
c. partnership income after deducting partner salaries
d. partnership income before deducting salaries and interest.
Answer: D
Partnership net income is defined as partnership income before deducting salaries and interest
4. Which component of the partnership profit and loss allocation is most commonly offered to the partner who manages
the business?
a. Interest on capital
b. Bonus
c. Salary
d. Residual interest
Answer: B
A partnership contract may provide for a bonus equal to the managing partner equal to a specified
percentage of income.
5. Which of the following should be done when the partnership profit and loss ratios are changed?
a. The book and market value of assets and liabilities should be evaluated
b. The capital accounts should be modified to reflect the new profit and loss ratio
c. The creditors should be informed that the profit and loss ratio have been changed
d. The partners must draft new articles of partnership
Answer: A
The following should be done when the partnership profit and loss ratios are changed, (1) Adjust all assets
and liabilities to reflect their fair values. Also record any unrecorded liabilities and assets, if any. (2) Calculate the
effects of all the differences between the book values and fair values as well as the unrecorded assets and liabilities,
and adjust only the partners’ capital account for the net effect of these adjustments using the old profit and loss
ratio.
6. Rex and Ella form a partnership and agree to share profits in a 2 to 1 ratio. During the first year of
operation, the partnership incurs a $20,000 loss. The partners should share the losses
a. based on their average capital balances.
b. in a 2 to 1 ratio.
c. equally.
d. based on their ending capital balances.
Answer: B
Source:Advance Accounting by Jeter and Chaney 3rd Edition - Test Bank
7. In the GF partnership, Gemma and Fatima had a capital ratio of 3:1 and a profit and loss of 2:1 respectively. The bonus
method was used to record Chian’s admittance as a new partner. What ratio would be used to allocate , to Gemma and
Fatima, the excess of Chian’s contribution ove the amount credited to Chian’s capital account?
a. Gemma and Fatima’s new relative ratio
b. Gemma and Fatima’s new relative profit and loss ratio
c. Gemma and Fatima’s old capital ratio
d. Gemma and Fatima’s old profit and loss ratio
Answer: D
The bonus method implied that the old partner either received a bonus from the new partner, or they paid a bonus to
the new partner . In this case Chian, the new partner invested an amount in excess of the amount credited to Chian’s
capital account. Accordingly the excess shoud be treated as a bonus to Gemma and Fatima. This bonus should be treated as
an adjustment to the old partner’s capital accounts and should be allocated by using Gemma and Fatima ‘s old profit ratio.
Source: Dayag, 2005 Problem 1-43
8. The Oxide and Ferris partnership agreement provides for Oxide to receive a 20% bonus on
profits before the bonus. Remaining profits and losses are divided between Oxide and Ferris
in the ratio of 2 to 3, respectively. Which partner has a greater advantage when the
partnership has a profit or when it has a loss? (AICPA 1191 T-15)
a. b. c. d.
Profit Oxide Oxide Ferris Ferris
Loss Ferris Oxide Oxide Ferris
Answer: B
REQUIRED: The partner with a greater advantage when the partnership has a profit or when it
has a loss.
DISCUSSION: (B) When the partnership has a loss, Ferris is allocated 60% and Oxide 40%.
Hence, Oxide has the advantage when the partnership has a loss. When the partnership has
a profit, Oxide receives 20% plus 40% of the remaining 80%, a total of 52% [20% + (40% x
80%)]. Thus, Oxide also that the advantage in this situation.
Answers (A), (C), and (D) are incorrect because Oxide has the advantage in the cah of either
a profit or a loss.
9. If the partnership agreement does not specify how income is to be allocated, profits should be
allocated
a. Equally.
b. In proportion to the weighted-average of capital invested during the period.
c. Equitably so that partners are compensated for the time and effort expended on behalf of
the partnership
d. In accordance with an established ratio.( Gleim)
Answer: A
REQUIRED: The profit and loss allocation among partners absent a provision in the
partnership agreement.
DISCUSSION: (A) Under the RUPA, profits are to be distributed equally among partners and
losses are to be distributed in the same manners are profits unless the partnership agreement
provides otherwise. This equal distribution should be based on the number of partners rather
than in proportion to the partners’ capital balances.
Answers (B), (C), and (D) are incorrect because each may be a basis for allocation only if it is
provided in the partnership agreement.
10. 5.On April 30, 2018, Lyris, Rex, and Ella formed a partnership by combining their separate
business proprietorships. Lyris contributed cash of $50,000, Rex contributed property with
a $36,000 carrying amount, a $40,000 original cost, and $80,000 fair value. The partnership
accepted responsibility for the $35,000 mortgage attached to the property. Ella contributed
equipment with a $30,000 carrying amount, a $75,000 original cost, and $55,000 fair value.
The partnership agreement specifies that profits and losses are to be shared equally but is
silent regarding capital contributions. Which partner has the largest April 30, 1993, capital
account balance? (AICPA 0593 T-9)
a. Lyris
b. Rex
c. Ella
d. All capital account balance are equal.
Answer: C
REQUIRED: The partner with the largest capital account balance after contributions of
monetary and nonmonetary asset.
DISCUSSION: (C) When partners invest nonmonetary assets in the business, those assets
should be recorded at their current fair value (market value) at the date they are contributed.
Hence, Lyris capital account balance is $50,000 and Ella’s account is $55,000. Likewise,
the amount in Rex capital account should represent the fair value of the assets
contributed. For this purpose, the property is valued net of the mortgage. Thus, Rex
capital account should be $45,000 ($80,000 market value of property – $35,000 mortgage
assumed by the partnership).
Answers (A), (B), and (D) are incorrect because Ella’s balance is the largest.
Chapter 3
1. Which of the following occurs every time a new partner is admitted to a partnership or an existing partner leaves the
partnership
a. Dissolution
b. Termination
c. Dissolution and termination
d. None of the above occurs
Answer: A
Partnership dissolution due to changes in ownership interest occurs for variety of reasons. These can be (1)
admission of new partner (2) retirement of partner (3) death of partner (4) incorporation of partnership.
2. When a new partner joins a partnership by investing assets into the partnership, what method may be used to record
the admission of the new partner?
a. Revaluation of existing method
b. Recognition of goodwill
c. Application of the bonus
d. Any of the three or a combination may be applied.
Answer: D
When a new partner join a partnership and its investment is either grater or lower than the agreed capital
the following methods can be used, (1) Revaluation of assets, (2) Recognition of goodwill and (3) Use of bonus method.
3. Who may acquire the ownership interest of a partner who is withdrawing from a partnership?
a. Existing partners
b. New investor
c. The partnership
d. All of the above
Answer: D
When a partner retires or withdraw from the partnership, the partnership is dissolved, but the remaining
partners may continue operating the business. The existing partners may buy out the retiring partner either by making
a direct acquisition or by having the partnership acquire the retiring partner’s interest.
4. Which of the following forms of new partner admission will not result in a change in the partnership’s net assets?
a. Purchase of an ownership interest directly from the partnership
b. Purchase of an ownership interest directly from an existing partner
c. Either of the above
d. Neither of the above
Answer: B
When an incoming partner purchase a portion or all of the interest of one or more partners, the partnerships
assets remain the same and no cash or other assets flow from the new partner to the partnership.
5. Ally, Althea And Ericka are partners who share income in a 5:4:3 ratio. Each has a capital balances of P60,000. Ally
retires from the partnership and is paid P95,000. In recording the retirement no entry was made to Althea’s capital
account. Which method of recording the retirement was used?
a. Bonus
b. Partial goodwill
c. Total goodwill
d. Transfer of assets
Answer: B
When the withdrawing partner is paid an amount more than his interest, three approaches can be used, (1)
Partial goodwill -record goodwill equal to the excess payment made to the retiring partner, (2) Total goodwill- Record
total implied goodwill of the partnership computed by dividing the excess payment with the retiring partner’s P/L
share percentage, (3) treat the excess payment as a bonus from the remaining partners.
6. The goodwill and bonus methods are two means of adjusting for differences between the net
book value and the fair value of partnerships when new partners are admitted. Which of the
following statement about these methods is correct?
a. The bonus method does not revalue assets to market values.
b. The bonus method revalues assets to market values.
c. Both methods result in the same balances in partner capital accounts.
d. Both methods result in the same total value of partner capital accounts, but the individual
capital accounts vary. (Gleim)
Answer: A
REQUIRED: The true statement about the bonus and goodwill methods.
DISCUSSION: (A) The goodwill method revalues assets to adjust the total value of partnership
capital. The bonus method simply readjusts capital accounts and makes no changes in
existing asset accounts.
Answer (B) is incorrect because the bonus method does not revalue assets. Answers (C) and
(D) are incorrect because the goodwill method revalues assets and the bonus method adjusts
capital accounts. Consequently, total partnership capital differs between the two methods
7. In the Ally-Marc partnership, Ally and Marc had a capital ratio of 3:1 and a profit and loss
ratio of 2:1, respectively. The bonus method was used to record Althea’s admittance as a new
partner. What ratio would be used to allocate, to Ally and Marc, the excess of Althea’s
contribution over the amount credited to Althea’s capital account?
a. Ally and Marc’s new relative capital ratio.
b. Ally and Marc’s new relative profit and loss ratio.
c. Ally and Marc’s old capital ratio.
d. Ally and Marc’s old profit and loss ratio. (AICPA 0r92 T-35)
Answer: D
REQUIRED: The ratio used to allocated to the original partners, the excess of the new
partner’s contribution over the amount credited to his/her capital account.
DISCUSSION: (D) The bonus method simply readjusts capital accounts and makes no
changes in existing asset accounts. The existing partners will share 2:1 in the allocation of the
bonus. The entry will be to debit cash (or the fair value of the property) contributed, and the
credit Colter’s capital account for a lesser amount. The excess will be credited in the ratio 2:1
to the original partners’ capital balances.
Answers (A), (B), and (C) are incorrect because the bonus to the original partners is effectively
a profit and should be allocated based on the old profit and loss ratio.
8. 10. During 1994, Chian and Lyris maintained average capital balances in their partnership of
$160,000 and $100,000 respectively. The partners receive 10% interest on average capital
balances, and residual profit or loss is divided equally. Partnership profit before interest was
$4,000. By what amount should Lyris capital account change for the year? (AICPA 1195 F-23)
a. $1,000 decrease.
b. b. $2,000 increase.
c. $11,000 decrease.
d. $12,000 increase.
Answer:A
REQUIRED: The change in a partner’s capital account.
DISCUSSION: (A) The partners are to receive 10% interest and then split the residual profit or
loss. Because interest exceeds partnership profit before interest, the residual loss is $22,000
{[10% x ($160,000 + $100,000)] - $4,000}. Lyris account is increased by $10,000 (10% x
$100,000) and decreased by $110,000 (50% x $22,000 loss), a net decrease of $1,000.
Answer (B) is incorrect because $2,000 is 50% of the partnership profit before interest.
Answer (C) is incorrect because an $11,000 decrease does not include the $10,000 of interest
owed to Zinc. Answer (D) is incorrect because a $12,000 increase equals 10% of capital plus
50% of residual profit.
9. Aimee Allen retires from the partnership of Allen, Beck, and Chale. Allen’s cash settlement
from the partnership was based on new goodwill determined at the date of retirement plus the
carrying amount of the other net assets. As a consequence of the settlement, the capital
accounts of Beck and Chale were decreased. In accounting for Allen’s withdrawal, the
partnership could have used the (AICPA, adapted)
a. b. c. d.
Bonus method No No Yes Yes
Goodwill method Yes No Yes No
Answer: D
REQUIRED: The method(s) that could have been used to account for the partner’s withdrawal.
DISCUSSION: (D) Under the bonus method, revaluation of assets to reflect goodwill is not
permitted. Consequently, if the partnership had unrecorded goodwill, Allen would have
received the balance in her capital account plus a share of the unrecorded goodwill. The
payment to Allen of a share of the unrecorded goodwill therefore would have resulted in
reductions of the capital balances of the remaining partners. Under the goodwill method,
goodwill would be debited, and the capital accounts would be credited in proportion to the
partners’ profit and loss sharing percentages. Accordingly, no decrease in the capital
balances of the other partners would be necessary under the goodwill method.
Answers (A), (B), and (C) are incorrect because the bonus but not the goodwill method could
have been used.
10. When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill’s
interest exceeded Mill’s capital balance. Under the bonus method, the excess
a. Was recorded as goodwill.
b. Was recorded as an expense.
c. Reduced the capital balances of Yale and Lear.
d. Had no effect on the capital balances of Yale and Lear. AICPA 1194 F-35
Answer: C
REQUIRED: The treatment of the excess of the settlement of a partner’s interest over the
capital balance.
DISCUSSION: (C) The bonus method reduces the capital accounts of the other partners
because the bonus, that is, the excess of settlement value over the retiring partner’s capital
balance, is deemed to be paid to the withdrawing partner by the remaining partners.
Answer (A) is incorrect because goodwill is not recorded under the bonus method. Answers
(B) and (D) are incorrect because the excess reduces the capital accounts; it is not an
expense.
Chapter 4
1. The rule indicating priority of partner’s loan over partner’s capital is supported by an established legal doctrine called?
a. charging order
b. foreclosure
c. right of offset
d. right of dual priorities
Answer: C
Right of offset is established legal doctrine indicating priority of partner’s loan over partner’s capital.
Advance Accounting Textbook 2017- Guerrero
2. Which of the following is not a part of the partnership liquidation process?
a. Allocation of any remaining profit or loss to partner’s capital account balances
b. Liquidation of non-cash assets
c. Closing the accounting records
d. Recognition of the market value adjustments of assets and liabilities
Answer: D
All of the following are part of the liquidation process except letter (D)
CPA reviewer Advance Accounting 2019-Dayag Theories 1- 58
3. Which of the following is not a restricted interest?
a. Cash withheld
b. Loans from
c. Absorption of deficiency
d. Unsold noncash assets
Answer: B
Restricted assets are compose of cash withheld, unsold non-cash assets and absorption of deficiency
4. Which of the following would be a cause of a capital deficiency to a partner?
a. A partner has borrowed money from the partnership
b. A partner has lend money to the partnership
c. The partnership has incurred a gain for the year
d. Partnership assets are liquidated for more than book value.
Answer: A
A partner has borrowed money from the partnership is equivalent to loans to partners.
5. To accomplish a partnership liquidation, the accountant should understand
a. The right of the partners
b. The right of the partnership’s creditors
c. The right of the partners’ creditors
d. All of the above
Answer: D
All of the following must be understand by the accountant.
6. Quinn, Rob, Sam and Tod are partners sharing profits and losses equally. The partnership is
insolvent and is to be liquidated. The status of the partnership and each partner is as follows:
Partnership Capital Balance Personal Assets (Exclusive of Partnership Interest) Personal Liabilities (Exclusive of Partnership
Interest)
Quinn 15,000 100,000 40,000
Rob 10,000 30,000 60,000
Sam (20,000) 80,000 5,000
Tod (30,000) 1,000 28,000
(25,000)
Assuming the partnership operates in a state where the Uniform Partnership Act applies, the
partnership creditors
a. Must first seek recovery against Sam because he is solvent personally and has a negative
capital balance.
b. Will not be paid in full regardless of how they proceed legally because the partnership
assets are less than the partnership liabilities.
c. Will have to share Rob’s interest in the partnership on a pro rata basis with his personal
creditors.
d. Have first claim to the partnership assets before any partner’s personal creditors have
rights to the partnership assets. (AICPA 0575 T-6)
Answer: D
REQUIRED: The rights of partnership creditors under the Uniform Partnership Act.
DISCUSSION: (D) The Uniform Partnership Act follows the legal concept of marshaling of
assets. Accordingly, the assets of the partnership are made available first to the partnership
creditors. Only after their claims are fully satisfied will the personal creditors of the partners be
able to proceed against partnership assets. Similarly, the personal creditors of each general
partner have first claim to the personal assets of that general partner. The Federal Bankruptcy
Reform Act of 1978, however, altered the marshaling of assets concept with regard to the
personal asset of a bankrupt partner when the partnership is also bankrupt. The trustee of a
bankrupt partnership shares pro rata with the other general unsecured creditors of a bankrupt
general partner. However, partnership creditors retain their priority in partnership assets under
bankruptcy law. The Revised Uniform Partnership Act follows the federal law.
Answer (A) is incorrect because, after exhausting the partnership assets, the creditors must
seek recovery against all partners in one legal proceeding; i.e., the partners are jointly liable.
Answer (B) is incorrect because the partnership creditors ultimately have recourse to the
personal assets of all the general partners. Answer (C) is incorrect because, under the UPA,
the partnership creditors have first claim to the partnership assets.
7. It refers to the process of converting the non-cash assets of the partnership and distributing the total cash to the
creditors and remainder to the partners.
a. Dissolution
b. Termination
c. Liquidation
d. Operation
Answer: C
Liquidation refers to the process of converting the non-cash assets of the partnership and distributing the total
cash to the creditors and remainder to the partners.
Source: Dayag, 2019
8. Which of the following statements is incorrect?
a. If the deficient partner has a loan balance, exercise the right of offset
b. If the deficient partner is solvent, make him invest cash to eliminate his deficiency.
c. If the deficient partner is insolvent, let the other partner absorb his deficiency.
d. None of the above
Answer: D
Source: Dayag, 2019
9. Which of the following is not part of the calculation to determine the loss absorption power when preparing a cash
distribution plan?
a. Loan to partners by partnership or loans to partner to the partnership by partners
b. Partner capital account balances
c. Partner profit and loss residual ratios
d. All of the above.
Answer: D
Source: Dayag, 2019
10. When making a distribution to partners during a partner during a 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 balance
b. The largest absorption power
c. Smallest capital account balance
d. The smallest absorption power
Answer: B
Source: Dayag, 2019
Chapter 5
1. Which of the following describes a partnership installment liquidation?
a. Keeping the partnership assets and liabilities separate from the partners’ personal assets and liabilities
b. The sale of noncash assets and payment of liabilities before a single distribution to partners
c. A series of interim distributions to partners while the sale of noncash assets and the payment of
liabilities is occurring.
d. The combining of a partner’s capital account with loans to/from the partnership
Answer: C
Partnership installment liquidation is a series of interim distributions to partners while the sale of noncash
assets and the payment of liabilities is occurring.
2. Prior to partnership liquidation, a schedule of possible losses is frequently prepared to determine the amount of cash
that may be safely distributed to the partners. The schedule of possible losses
a. Consists of each partner’s capital account plus loan balance, divided by that partner’s profit-and-loss
sharing ratio.
b. Shows the successive losses necessary to eliminate the capital accounts of partners (assuming no contribution
of personal assets by partners)
c. Indicates the distribution of successive amounts of available cash to each partner.
d. Assumes contribution of personal assets by partners unless there is a substantial presumption of personal
insolvency by the partners. (Gleim)
Answer: B
REQUIRED: The true statement about a schedule of possible losses.
DISCUSSION: (B) A schedule of possible losses presents a series of incremental losses to
indicate the amount of loss in a liquidation that will eliminate each partner’s capital account.
The presumption is that losses or partners’ capital deficits will not be repaid by individual
partners. The schedule is used to determine the amount of cash that may be safely distributed
to the individual partners without potential impairment of the rights of any party.
Answer (A) is incorrect because it describes the computation that determines the order in
which partners’ capital accounts will be eliminated by losses, not the amounts thereof. Answer
(C) is incorrect because it describes a cash distribution schedule. Answer (D) is incorrect
because the presumption (for the schedule) is that losses or deficits will not be repaid by
individual partners.
3. In a partnership liquidation, the final cash distribution to the partners should be made in accordance with the
a. Partners’ profit and loss sharing ratio.
b. Balances of the partners’ capital accounts.
c. Ratio of capital contributions made by the partners.
d. Ratio of capital contributions less withdrawals made by the partners. (RPCPA 1079)
Answer: A
4. In an advance plan for installment distributions of cash to partners of a liquidating partnership, each partner's loss
absorption potential is computed by
a. dividing each partner's capital account balance by the percentage of that partner's capital account balance
to total partners' capital.
b. multiplying each partner's capital account balance by the percentage of that partner's capital account
balance to total partners' capital.
c. dividing the total of each partner's capital account less receivables from the partner plus payables to the
partner by the partner's profit and loss percentage.
d. some other method.
Answer: C
5. A schedule prepared each time cash is to be distributed is called a(n)

a. advance cash distribution schedule.
b. marshaling of assets schedule.
c. loss absorption potential schedule.
d. safe payment schedule.
Answer: D
6. The first step in preparing an advance cash distribution plan is to
a. determine the order in which partners are to participate in cash distributions.
b. compute the amount of cash each partner is to receive as it becomes available for distribution.
c. allocate any gains (losses) to the partners in their profit-sharing ratio.
d. determine the net capital interest of each partner.
Answer: D
7. The document used by a trustee to report periodically on the status of fiduciary activities is called
a. Statement of Assets and Liquidation
b. Legal Statement of Affairs
c. Accounting Statement of Affairs
d. Statement of Realization
Answer: D
Source: Dayag, 2019
8. The document used to estimate amounts available to each class of claims is called a(an)
a. Statement of Assets and Liabilities
b. Legal Statement of Affairs
c. Accounting Statement of Affairs
d. Statement of Realization and Liquidation
Answer: C
Source: Dayag,2019
9. The financial reports for a corporate bankruptcy liquidation are:

a. Balance sheet and Statement of Affairs
b. Statement of Affairs and Statement of realization and liquidation
c. Balance sheet and Income Statement
d. Statement of Affairs and income statement
Answer: B
Source: Dayag,2019
10. Which one of the following a corporation is most likely to realize the smallest percentage of its book value in
bankruptcy?
a. Accounts receivable
b. Plant and Equipment
c. Goodwill
d. Inventories
Answer: C
Source: Dayag,2019

Theories Chapter 1 - 5

Transféré par

Informations du document

Titre original

Copyright

Formats disponibles

Partager ce document

Partager ou intégrer le document

Options de partage

Avez-vous trouvé ce document utile ?

Ce contenu est-il inapproprié ?

Droits d'auteur :

Formats disponibles

Theories Chapter 1 - 5

Transféré par

Droits d'auteur :

Formats disponibles

Theories

1. The Revised Uniform Partnership Act defines a partnership as

3. A partnership records a partner’s investment of assets in the business at

7. Which one of the following is a characteristic of a general partnership?

Source: Dayag, 2019

10. What equity theory is applicable for partnerships?

Source:Advance Accounting by Jeter and Chaney 3rd Edition - Test Bank

5. A schedule prepared each time cash is to be distributed is called a(n)

9. The financial reports for a corporate bankruptcy liquidation are:

Vous aimerez peut-être aussi