Partnership operation

If there is an agreement for the division of profits but none for losses, it is concluded that:

• Losses should be divided according to partner’s average capital ratio.

• Losses should be divided according to partner’s original capital ratio.

•  Losses should be divided in the same way as profits.

• Losses should be divided equally.

Which of the following statements is correct?

• Any salary allowances stipulated in the partnership agreement are considered if profit is sufficient to cover such allowances.

•  Bonus is given regardless there is a profit or a loss.

•  Partnership profit or loss is shared equally, unless the partnership contract specifically indicates the manner in which profit or loss is to be divided.

• The different kinds of partners in accordance to their capital contribution will always share in the profits.

The Blue and Gold partnership agreement provides for Blue to receive a 30% bonus on profits before the bonus. Remaining profits and losses are divided between Blue and Gold in the ratio of 2:3, respectively. Which partner has a greater advantage when the partnership has a profit or when it has a loss?

• Profit - Gold ; Loss – Blue

• Profit - Blue ; Loss – Blue

• Profit - Gold ; Loss – Gold

•  Profit - Blue ; Loss – Gold

   

S1. The partners' drawing accounts need not be closed to the capital accounts if the partnership opts to preserve the original capital balances indicated in the partnership contract.

S2. A partnership is not subject to income tax.

• True, False

• False, False

• False, True

• True, True

S1. Any salary allowances stipulated in the partnership agreement are considered only if profit is sufficient to cover such allowances.

S2. Partnership losses are shared in the same manner as profits, if the partnership agreement specifies a method for sharing profits, but not losses.

• True, True

• False, True

• True, False

• False, False

S1. Salaries to partners and interest on partners' capitals are accounted for as expenses of the partnership.

S2. It is necessary to set up a drawing account for the industrial partner for the purpose of recording his share in the profits of the partnership.

• True, True

• False, False

• True, False

• False, True

In a partnership, partners' salaries are considered 

•  An allocation of profits and losses

•  Liability

• A loss

•  An expense of the business

The following items should be clearly specified in the articles of co-partnership.

I. Procedures for admitting new partners.

II. Profit-sharing ratio.

III. Taxes paid by the partnership.

IV. Withdrawals allowed to partners

• I, II, III

• I, II, IV

• II, III, IV

• I, III, IV

The entry to distribute a loss to the partners

• Debit Income Summary; Credit Partner’s Capital accounts

•  Debit Income Summary account; Credit Partner’s Drawing accounts

•  Debit Partner’s Drawing accounts; Credit Income summary

• Debit Partner’s Capital Account; Credit Expense accounts

S1. The percentage of ownership interest of the partners is always the same as their profit-sharing ratio.

S2. The partnership profit is divided in proportion to each partner's capital equity interest, unless the partnership contract specifically indicates the manner of dividing the profit.

• True, True

• True, False

• False, True

• False, False