PARTNERSHIP AND CORPORATION - PROFIT DISTRIBUTION

The partnership contract provides that "net income or losses are to be distributed in the ratio

of partners' capital account balances." The appropriate interpretation of this provision is that

net income or losses should be distributed in:

• The ratio of beginning capital account balance

• The ratio of average capital account balances

• the ratio of ending capital account balances

• The ratio of original capital account balances

Salaries to partners of a partnership typically should be accounted for as:

• A device for sharing net income.

• An operating expense of the partnership

• Drawings by the partners from the partnership.

• Reductions of the partners' capital account balances

Which of the following is an expense of a partnership?

• Interest on partners' capital account balances

• Interest on loans from partners to the partnership

• Both a and b

• Neither a and b

A partners' withdrawal of assets from a partnership that is considered a permanent reduction

in that partners' equity is debited to the partners':

• Drawing accounts

• Retained earnings account

• Capital account

• Loan receivable account

The partners' drawing accounts are used:

• To record the partners' salaries

• To reduce the partners' capital account balances at the end of an accounting period

• In the same manner as the partners' loan accounts.

• To record the partners' share of net income or loss for an accounting period

The allocation of an error should be based on the profit and loss ratio in effect when:

• The error was made.

• The error was corrected

• The error was discovered

• the allocation should always be made equally.

If there is a provision for division of profits but not losses in the partnership agreement, it is

concluded that:

• Losses should not be divided to the capital accounts, but matched-against future

  earnings

• Losses should be divided using the same approach as division of profits.

• Losses should be divided equally

• Losses should be allocated according to the ratio of capital account balances

Partners Lim and Tan share profits in a 2:1 ratio, respectively. Each partner receives an annual

salary allowance of P60,000. If the salaries are recorded in the accounts as a partnership

expense rather that treated as a division of net income, the total amount allocated to each

partner for salaries and net income would be:

• Less for both Lim and Tan

• Unchanged for both Lim and Tan

• More for Lim and less for Tan.

• More of Tan and less for Lim

Under what circumstances can the closing of the income summary account result in a debit to

one partners' capital account and credits to the other partners' capital accounts?

• The results of operations are divided in a profit and loss ratio and the partnership

  sustained a loss for the period

• The results of operations are allocated in a profit and loss ratio and the partnership's

  net income was very low

• The results of operations are divided in the average capital ratio and one partner had

  a low capital balance

• The partnership agreement provides for interest on capital and salary allowances and

  net income is less that the sum of the interest and salary allowances

If the partnership agreement provides for the division of losses only. Profits should be divided

• Equally

• According to beginning capital ratio.

• According to ending capital ratio

• According to average capital ratio