Answered: 1. The division of partnership profits…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. 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 the partnership by the partners

2. On July 1, Fernando and Fetalvero formed a partnership, agreeing to share profits and losses in the ratio of 4:6 respectively. Fernando contributed a parcel of land that cost P250,000. Fetalvero contributed cash of P500,000 cash. The land was sold for P500,000 on July 1, three hours after the formation of a partnership. How much should land be recorded in Fernando's capital account upon the formation of the partnership?

a. P200,000

b. P500,000

c. P250,000

d. P100,000

3. Lacson and Solis started a partnership. Lacson contributed a building that she purchased 10 years ago for P100,000. The accumulated depreciation on the building on the date of formation of the partnership is P25,000 and the fair value is P110,000. For what amount will Lacson's capital account be credited on the books of the partnership. *

a. P100,000

b. P75,000

c. P110,000

d. P25,000

Partners' capital account is credited in the following cases except when it involves the recording of the

a. additional invesment

b. original investment

c. share in profit

d.debit balance of the drawing account at the end of the period

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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