Multiple Choice 1. Which of the following best describes the nature of salary and interest allowances in a partnership profit and loss sharing agreement? a. A means of determining reasonable monthly withdrawals by each partner. b. The amount upon which each partner will have to pay personal income tax. A means of distributing profit in relation to services rendered and capital invested by partners. d. Expenses of the business that should be deducted from revenue in determining profit. C. A statement of changes in partners' equity should include all of the following except a. Beginning capital balances. b. Investments during the period. Partner's payments of loans. d. Withdrawals during the period. e. Ending capital balances. Share of profit for the period. C. Partners Lusterio and Advincula receive a salary of P150,000 and P300,000, respectively, and share profit and losses in a 2:1 ratio, respectively. If the partnership suffered a P150,000 loss in 2019, by how much would Lusterio's account decrease? a. P400,000 b. P250,000 C. P200,000 d. P100,000 Orosco is an industrial partner. Besides his services, he also contributed capital to the partnership. There is no agreement as to the distribution of profits or losses. The share of Orosco in the profit is a. to be determined by the remaining partners. b. combination of c and d below. .. pro-rata to his contribution. d. such share as may be just and equitable under the circumstances. 5. If the partnership agreement does not specify how profit is to be allocated, profits or losses should be allocated a. equally, b. in accordance with their capital contribution. in proportion to the average of capital invested during the period. d. equitably so that partners are well compensated for their time and effort. c. 6. Partners Manalo and Capuno receive an interest allowance of P100,000 and P150,000, respectively, and divide the remaining profits and losses in a 3:1 ratio. If the company sustained a loss of P110,000 during the year, what is the effect on Manalo's capital? a. P82,500 decrease b. P120,000 decrease C. P170,000 decrease d. P105,000 decrease 7. Which of the following items in the property, plant, and equipment section of the statement of financial position are not depreciated? Used equipment b. 11-year-old building New equipment d. Land a. C. 8. What is cash flow? a. Cash flow = profit + depreciation + depletion b. Cash flow = profit - depreciation C. Cash flow = gross income + depreciation + depletion d. Cash flow = gross income - depreciation + depletion 9. The division of partnership profits on the basis of salaries, interest and an agreed ratio is usually necessary because a. this prevents arguments among the partners. b. most investors require this method of distribution. C. partners seldom contribute time, effort, and resources equally. d. this reflects the amount of time devoted to the partnership by the partners. 10. Partners De Guzman and Tugade receive a salary allowance of P30,000 and P70,000, respectively, and share the remainder equally. If the company earned P40,000 during the period, what is the effect on Tugade's capital? C. a. P30,000 decrease b. P40,000 increase P50,000 increase d. 290,000 increase 11. Parducho had a P500,000 capital balance for eight months and a P650,000 balance for four months. Burgos had a P380,000 capital balance for five months Parducho receive if profits and losses are distributed based on the ratio of their P500,000 balance for seven months. How much of the year's P800,000 profit should average capital balances? and a. P360,000 b. P387,500 C. P440,000 d. P453,200 12. Which of the following is not a component of the formula used to distribute profit? After all other allocations, the remainder divided according to the profit and loss sharing ratio. b. Salary allowances to the managing partners. Interest on the average capital investments. d. Interest on notes to partners. a. C. 13. A partner has a capital balance of P400,000 for five months, P500,000 for four months, and P600,000 for three months. The average capital balance is a. P483,333. b. P485,000. C. P491,680. d. P500,000. 14. Arzadon, Ballada and Castro are partners. Their contributions are as follows: Arzadon, P600,000; Ballada, P400,000 and Castro, services. Partners Arzadon, Ballada and Castro agreed to divide profits or losses in the ratio of 35:25:40, respectively. How should a loss of P100,000 be shared by the partners? a. Arzadon, P30,000; Ballada, P20,000 and Castro, P50,000. b. Arzadon, P35,000; Ballada, P25,000 and Castro, P40,000. C. Arzadon, P35,000; Ballada, P35,000 and Castro, P30,000. d. Arzadon, P60,000; Ballada, P40,000 and Castro, nothing. 15. 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. Equally. b. Specified ratio. 2-36 | WIN Ballada's Partnership and Corporation au C. Salary allowances. d. Interest on capital balances. 16. A partner who contributes money or property as well as his work or industry to the capital of the partnership is called Industrial partner b. Capitalist partner c. Managing partner d. Capitalist-industrial partner a. a. 17. Closing entries of a partnership include entries to record distribution of cash to the partners. b. eliminate the capital accounts and record the distribution of assets to partners to effect the partnership termination and liquidation. close income and expense accounts to the income summary account; and then close the profits or losses to the drawing accounts. d. close the profits or losses and dividends declared accounts to retained earnings. C. 18. Arzadon, Ballada and Castro are partners. Their contributions are as follows: Arzadon, P600,000; Ballada, P400,000 and Castro, services. The partners did not agree on how to divide profits or losses. If there is a loss of P100,000, how should the loss be shared by the partners? a. Arzadon, P60,000; Ballada, P40,000 and Castro, nothing. b. Arzadon, P35,000; Ballada, P25,000 and Castro, P40,000. Arzadon, P35,000; Ballada, P35,000 and Castro, P30,000. d. Arzadon, P30,000; Ballada, P20,000 and Castro, P50,000. C. 19. A 1:3:2 ratio is the same as a. 10%:30%:20%. b. 1/10:3/10:2/10. C. 1/6:1/2:1/3. d. 20%:50%:30%. 20. Periodic withdrawals by partners are best viewed as a. expense of doing business. b. taxable income to the partners. distribution of partnership assets to the partners. d. payment for partners' personal services to the partnership. C. operations firm sustained a loss of P30,000. So, the total profit for the two years 21. Pozon, Ventic and Biore are partners. Pozon is an industrial partner. During the first year of operation, the firm realized a profit of P60,000. During the second year, the of was only P30,000. In the Articles of Partnership, it was agreed that Pozon, the industrial partner would get one-third of the profit but would not share in the losses. How much will Pozon, the industrial partner get? Pozon will get only P10,000 which is one-third of the profit. b. Pozon will get only P20,000 in the first year and none in the second year. Pozon will share in the loss in the second year. d. Pozon will get only P20,000 which is 1/3 of the profit of the first year of operations. a. C. 2. Which of the following is not considered a legitimate expense of a partnership? a. Supplies used in the partners' offices. b. Salaries for management hired to run the business. C. Depreciation on assets contributed to the partnership by the partners. d. Interest paid to partners based on the amount of their invested capital. 3. Opiso, Bombeo and Palatino are partners. Their contributions are as follows: Opiso, P600,000; Bombeo, P400,000 and Palatino, services. The partners agreed to divide profits or losses in the following percentages: Opiso, 35%; Bombeo, 25% and Palatino, 40%. If there is a profit of P100,000, how should the profit be distributed among the partners? a. Opiso, P35,000; Bombeo, P35,000 and Palatino, P30,000. b. Opiso, P30,000; Bombeo, P20,000 and Palatino, P50,000. C. Opiso, P35,000; Bombeo, P25,000 and Palatino, P40,000. d. Opiso, P60,000; Bombeo, P40,000 and Palatino, nothing. The most equitable distribution of partnership profit based on capital contributions uses which of the following capital concept? a. Equally b. Ending capital C. Beginning capital d. Average capital