SW#1

Tell if the statement is TRUE OR FALSE

1. The contract of partnership is based upon mutual trust and confidence.

2. A partnership contract is perfected by law.

3. A partner’s interest in the partnership may be assigned to third persons.

4. A partnership may be established for charity.

5. The purpose of partnership must be lawful and must established the common interest of the
partners.

6. Each partner has an equal right to use the partnership assets, to act for the partnership and
enter into contracts binding upon it.

7. A partnership has a judicial personality separate and distinct from each

of the partners.

8. A partnership may be entered into in any form.

SW#2

Choose the letter of the correct answer.

1. The business organization that is not usually subject to tax is

a. Single Proprietorship
b. Trade Partnership
c. General Professional Partnership
d. Corporation

2. A partnership is
a. Association of 2 or more entities
b. An association of two or more persons to carry on a business for profit as co-owners
c. Not a separate legal entity for legal purposes
d. An entity created by following statutory requirements

3. The ability of a partner to enter into a contract on behalf of all partners is called
a. Mutual Agency
b. Voluntary Association
c. Unlimited liability
d. The partnership agreement
4. A partner who contributes his work, labor or industry to the common fund of the partnership is called
a. Limited Partner
b. Capitalist Partner
c. Industrial Partner
d. Managing Partner

5. In general, partners have unlimited liability, but which type of partner does not have unlimited
liability?
a. Industrial partners
b. General partners
c. Limited partners
d. Silent partners

6. The primary reason why an article of the partnership should not be kept secret among the partners is
the principle of
a. Transparency
b. Voluntary agreement
c. Mutual agency
d. Lawful agreement

7. A partnership characteristic which states that a partner, acting within the scope of the operations of
the business, may bind the partnership and make it liable to third party is termed:
a. Voluntary association
b. Separate legal personality
c. Mutual agency
d. Co-ownership of assets

8. All of the following are true for both general and limited partnership except
a. Both have at least one general partner
b. All partners have the right to participate in the profits of the business
c. All partners are liable for all the debts of the firm
d. Both are easily dissolved

9. In a limited partnership,
a. All partners have unlimited liability
b. All but the general partners have limited liability
c. All but the general partners have unlimited liability
d. The general partners have limited liability

10. Which of the following characteristics do not apply to a general professional partnership?
a. Mutual agency
b. Unlimited liability
 c. Unlimited life
d. No business income tax

ACCOUNTING FOR PARTNERSHIP FORMATION

1. Same accounting procedures with sole proprietorship, except;

2. Separate drawing and capital accounts for each partner in a partnership.

3. Assets invested are recorded by crediting the capital account of the contributing partner

4. Capital account is maintained for investments and drawings of each of the partner.

5. Non-cash contribution is recorded at values agreed upon by all partners, generally at FMV at
the time of contribution.

6. In the event that FMV cannot be determined, values are assigned on the asset as agreed by all
partners.

7. Obligation assumed by the partnership related to the contributed asset is credited to the
specific liability account.

8. The admission of an industrial partner is recorded through a memorandum entry, stating the
fact and his share in the profits.

ILLUSTRATION

PREPARE THE JOURNAL ENTRIES OF THE FOLLOWING CASES.

SHOW THE CAPITAL BALANCES OF EACH PARTNER UPON FORMATION.

Case 1. Assume that A,B, and C organized a partnership, with A investing cash of P50,000 and B investing
equipment costing P120,000. C is admitted with a 20% share in the profit.
Case 2. Bel, Joy and Christopher, new lawyers, formed a partnership. Bel contributed cash of P50,000
and her car that originally cost P60,000 but with second hand value of P25,000. Joy will contribute cash
of P80,000. Christopher, whose family sells furniture, will contribute P25,000 cash and an antique table
that cost his family’s store P50,000 but with a regular selling price of P60,000. The three agree to share
profits and losses equally.

Case 3. Mateo and Julio formed a partnership on June 1 and contributed the following assets: Mateo
contributed cash of P600,000 and Julio P200,000. In addition, Julio contributed land with a cost of
P600,000. The land was subject to a mortgage of P100,000 which was assumed by the partnership.
 • Alec and Bhulec agreed to form a partnership with the following assets to be contributed in the
partnership:
Alec Bhulec
Cash P2,000,000 P3,000,000
Inventory 1,500,000
Land 1,000,000
Building 3,000,000
Furniture and Fixtures 1,500,000
Additional Information:
The building is subject to a mortgage loan, already past due, in the amount of P1,000,000. Alec
settled the mortgage from his personal funds. Partners agreed that Alec should be credited for this. The
partnership agreement calls for an equal division of profit and loss between Alec and Bhulec.
Required: Record the contribution of Alec and Bhulec.
1. How much capital will be accounted to each of them.
2. 2. Supposing the mortgage will be assumed by Bhulec