Advanced Financial Accounting and Reporting2

(ACCTGN7)

TRUE or FALSE
False 1. Cash payments may be made in the profits and loss
ratio only when installment payments have caused
the ratio of the partners’ capital account balances
to be the same as the profit and loss ratio.
False 2. When cash is insufficient to fully satisfy the cash
requirements in a particular priority, then the
available cash will be distributed using the profit
and loss ratio.

True 3. Restricted interests are provided for assumed non-

sale of remaining non-cash assets and for assumed
insolvency of deficient partners.

False 4. A partner’ unrestricted interest represents the

portion of a partner’s interest which should remain
available to absorb possible future losses.

False 5. The entry to record the exercise of offset will

debit the partner’s loan account and credit cash.

True 6. The use of safe payments schedule and cash priority

program are alternatives which will yield the same
ultimate cash distributions to the partners.

False 7. The creditors of the partnership are preferred with

respect to the separate or personal properties of
the partners.

False 8. Partnership creditors shall have priority in

payments than those of the partners’ separate
creditors as regards the separate properties of the
partners.

False 9. The creditors of each partner shall be preferred to

those of the partnership as regards the partnership
property.

False 10. A partner’s interest can be obtained by simply

adding the partner’s capital account, loans to and
from the partnership.
False 11. When a partnership goes out of business, all the
remaining non-cash assets will be declared as a
total loss. This loss on liquidation shall be
divided among the partners in their profit and loss
ratio.

False 12. A partnership is said to be dissolved when the

business is terminated.

True 13. A partnership may be dissolved without being

liquidated but liquidation is always preceded by
dissolution.

False 14. The cash settlement of all liabilities is

referred to as realization.

False 15. A partner’s inability to meet his obligations at

the time of liquidation relieves that individual of
his liabilities to the other partners.

False 16. Gains and losses on the sale of assets in

liquidation are divided equally among partners.

False 17. In liquidation, partners are given back the

assets that they originally invested.

False 18. A partnership is said to be dissolved when the

business is terminated.

False 19. Goodwill is the amount of capital or equity

transferred by one partner to another partner.

True 20. When a newly admitted partner pays a bonus to

the existing partners, the new partner’s capital
account is debited to record bonus to old partners.

False 21. When a new partner invests more than the

proportionate share he receives in the partnership,
a bonus is recorded to his account.
False 22. When a partner withdraws assets greater than his
capital balance, the excess is treated as a bonus
to the remaining partners.
True 23. A partnership may be dissolved at any time by
any of the partners.
False 24. In admission by investment, the bonus method is
used when the total agreed capital is more than the
total contributed capital.
True 25. On dissolution, the partnership is not
terminated but continues until winding up of
partnership affairs is completed.
True 26. When the existing partners pay a bonus to a
newly admitted partner, the existing partner’
accounts are debited.
True 27. When a bonus is allowed to a new partner, part
of the entry to record his admission to the
business reduces the capital accounts of the old
partners.
False 28. If a partner withdraws by selling his equity
interest to the partnership in exchange for a
greater than the balance In his capital account,
the excess payment will be treated as a bonus to
the continuing partners.
True 29. The retirement of a partner by payment from
partnership assets may cause the other partners’
capital accounts to decrease.
True 30. In admission by purchase, payment is personally
made to the partner whom the interest is obtained
resulting to mere transfers among capital accounts.

MULTIPLE CHOICE QUESTIONS

C 31. A liquidation differs from a dissolution in that
in a liquidation
a. There may be an adjustment of partners’ capital
accounts
b. Assets may be revalued
c. The business will not continue
d. Gains and losses are distributed according to
the partnership agreement