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Partnership Formation

True/False
Indicate whether the statement is true or false.

____ 1. Partnership is similar from a sole proprietorship in the areas of formation, income distribution, dissolution and
liquidation.

____ 2. In a partnership, there is only one capital and drawing account there only being one juridical personality, the
partnership.

____ 3. One disadvantage of partnership over sole is when there is net loss because it can be shared to the other
partners.

____ 4. The basic purpose of organizing a partnership is to earn profit and divide said profits among the partners,
excluding industrial partners.

____ 5. Strictly speaking, the practice of profession is not a business or enterprise for profit.

____ 6. The partnership form of business organization is suited to the practice of profession because of personalize
nature of the service offered by professionals.

____ 7. It is an involuntary act of a person to become a partner in a partnership.

____ 8. An industrial partner shares not only in profits but also in losses.

____ 9. An industrial partner is like a general partner who is also liable to partnership’s debts up to the extent of his
personal assets.

____ 10. A partner who contributes labor and skills to the partnership is said to be a limited partner.

____ 11. An industrial partner is admitted to the partnership by means of a memorandum entry only.

____ 12. A contract of partnership maybe oral or written, expressed or implied.

____ 13. In a limited partnership, there should be at least be two general partner to assume the partnership obligation.

____ 14. In a limited partnership, there can be two general partner to assume the partnership obligation.

____ 15. In a limited partnership all partners are limited partners.

____ 16. A creditor can run after the personal assets of a general partner and industrial partners but not the limited
partners.

____ 17. In a general partnership, all partners are general partners.

____ 18. Adjustments prior to the formation of partnership may be omitted since these will not affect in any manner to
the partner’s capital.
____ 19. In revaluing the non-cash assets which has “contra-assets”, the amount of adjustment is reflected in the asset
itself.

____ 20. By fair market value, we mean the “estimated price of asset that the seller is willing to sell and the buyer is
willing to buy in an open market”.

____ 21. When the non-cash assets are invested in the partnership, these are recorded at cost.

____ 22. The manner in which profits and losses are to be divided should be stipulated in the partnership contract.

____ 23. A public instrument needs to be executed when movable property is contributed to the partnership.

____ 24. A partnership must be in writing when the capital of the partnership is P5,000.

____ 25. To restate the value of an old asset to conform with its market value is termed as “asset revaluation”.

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 26. A partnership is a/an


a. voluntary and valid agreements among partners
b. mutual agency among partners
c. entity created by the operation of law
d. association for profit to be divided among partners
____ 27. The partnership agreement may be in the form of
a. written contract
b. oral contract
c. implied agreement
d. all of the above.
____ 28. Partner’s agreements are contained in a/an
a. By-Laws
b. Partner’s Diary
c. Articles of Co-Partnership
d. Articles of Incorporation
____ 29. A partner may invest in the partnership business in any of the following, except
a. cash
b. non-cash asset
c. personal services
d. personal liability
____ 30. All of the following are major characteristics of a partnership business, except
a. limited life
b. mutual agency
c. co-ownership of property
d. tax exempt
____ 31. Which of the following partners are not liable in case of a partnership losses but liable for partnership debts to
the extent of their personal assets.
a. capitalist partners
b. silent partners
c. industrial partners
d. secret partners
____ 32. The estimated price of an asset that a seller is willing to sell and the buyer is also willing to buy in an open
market.
a. sound value
b. current value
c. fair market value
d. replacement value
____ 33. To restate the value of an old asset to conform with its fair market value is termed as
a. asset revaluation
b. impairment of asset
c. plant modification
d. fluctuation in prices
____ 34. When a partner invests a non-current asset in the partnership business, the recording should be based on
a. the price dictated by the investing partner
b. the original cost of the asset
c. adjusted fair market value of the asset
d. any price acceptable to both parties
____ 35. When an industrial partner joins in the partnership, his participation should be booked in the journal and in
the same, affix his signature -
a. simple journal entry
b. compound journal entry
c. memorandum entry
d. separate entry
Partnership Formation
Answer Section

TRUE/FALSE

1. ANS: F PTS: 1
2. ANS: F PTS: 1
3. ANS: F PTS: 1
4. ANS: F PTS: 1
5. ANS: T PTS: 1
6. ANS: T PTS: 1
7. ANS: F PTS: 1
8. ANS: F PTS: 1
9. ANS: T PTS: 1
10. ANS: F PTS: 1
11. ANS: T PTS: 1
12. ANS: T PTS: 1
13. ANS: F PTS: 1
14. ANS: T PTS: 1
15. ANS: F PTS: 1
16. ANS: T PTS: 1
17. ANS: T PTS: 1
18. ANS: F PTS: 1
19. ANS: F PTS: 1
20. ANS: T PTS: 1
21. ANS: F PTS: 1
22. ANS: T PTS: 1
23. ANS: F PTS: 1
24. ANS: T PTS: 1
25. ANS: T PTS: 1

MULTIPLE CHOICE

26. ANS: A PTS: 1


27. ANS: D PTS: 1
28. ANS: C PTS: 1
29. ANS: D PTS: 1
30. ANS: D PTS: 1
31. ANS: C

PTS: 1
32. ANS: C PTS: 1
33. ANS: A PTS: 1
34. ANS: C PTS: 1
35. ANS: C PTS: 1