Financial Statements 2 Test 7

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Financial Statements 2 Test 7

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Weekly Quiz Competition

Question 1
1 / -0

In case of insolvency of a partner, any balance in reserve fund or profit and loss accounts is distributed to all the partners ______________.

A
Equally

B
In the profit sharing ratio

C
In the ratio of capitals

D
In sacrificing ratio
Solution
In general, unless otherwise agreed upon, the partnership is dissolved upon the insolvency of a partner. In some cases, partnership agreements are made to ensure that if a partner becomes insolvent, there are clear guidelines on how the partnership continues.
The following rules shall be observed subject to agreement by the partners:
All the losses of the company including deficiencies of capital shall be paid out of profits first, then out of the capital and lastly if necessary by the partners individually in proportions to which they are entitled to share profits.
All the assets of the company including all the sums contributed by the partners shall be applied in the following manner:
In paying all the debts of the firm to the third parties
in paying each partner rateable what is due to him from the firm for advances as distinguished from capital
in paying to each partner rateable what is due to him on account of capital
The residue shall be divided among the partners in the proportions in which they were entitled to share profits.
Question 2
1 / -0

In the absence of an agreement to the contrary, the partners _________________.

A
Are entitled 6% interest on their capitals, only when there are profits

B
Are entitled 6% interest on their capitals, whether there is profit or not

C
Are entitled for interest on capital at the bank rate, only when there are profits

D
Are not entitled for any interest on their capitals

Solution

As per the Partnership Act, 1932, the rule that is applicable concerning interest on capital of the partners, in the absence of an agreement among them, is that 'no Interest on capital shall be allowed irrespective of the profit or loss.'
Question 3
1 / -0

The interest on partners capital accounts is to be credited to _______________.

A
Interest Account

B
Profit and Loss Account

C
Drawing Account

D
Partner's Capital Account

Solution

Interest on partner's capital is an amount at an agreed rate of interest which is credited to a partner based on the amount of capital contributed by him/her.
Interest on partner's capital is an expense to the firm and hence debited to profit and loss appropriation A/c. On the other hand it is an income for partners and hence credited to partner's capital A/c.
Question 4
1 / -0

In the absence of an agreement to the contrary, ___________________.

A
An active partner is entitled for salary and a sleeping partner for interest on capital @ 6% p.a.

B
An active partner is entitled for salary and each partner for interest on capital @ 6% p.a.

C
All partners are entitled for salary and interest on capital @ 6%

D
No partner is entitled for salary or interest on capital

Solution

As per the Partnership Act, 1932, the rule which is applicable concerning interest on capital of the partners, in the absence of an agreement among them, is that 'no salary or interest on capital shall be allowed to any partner.'
Question 5
1 / -0

Amount realization from the sale of private estate of partners is used first to pay off ___________________.

A
Debts of the firm

B
Private debts of the partner

C
Wife's loan

D
Bank loan of the firm
Solution
- Assets of the firm and the capital contributed by the partners to set-off losses of the firm will be applied in the following order–
1. Third party debts will be paid first
2. Next, loan amount taken by firm from any partner will be repaid to that partner
3. Capital contributed by each partner will be repaid to him in the capital contribution ratio
4. Balance amount will be shared among the partners in their profit sharing ratios.
Question 6
1 / -0

' Taxes owned but payable in the following period' should be classified as __________________.

A
Accrued assets

B
Accrued liability

C
Prepaid expense

D
Unrearned revenue

Solution

Examples of Accrued Liabilities Employees may have performed work but have not yet received wages. Interest on loans may be accrued if interest fees have been incurred since the previous loan payment. Taxes owed to governments may be accrued because they may not be due until the next tax reporting period.
Question 7
1 / -0

The debts written off as bad, if subsequently recovered are credited to __________________.

A
Debtors

B
Sales account

C
Profit and loss account

D
Bad debts account

Solution

A bad debt recovery is a payment received after it has been designated as uncollectible.
If the original entry was instead a credit to accounts receivable and a debit to bad debt expense (the direct write-off method), then reverse this original entry.
Question 8
1 / -0

Life insurance premium received by an insurance company' should be classified as _______________.

A
Accrued Asset

B
Accrued Liability

C
Prepaid Expense

D
Unearned Revenue

Solution

The life insurance premium should be classified as unearned revenue because against this amount still the company has to render service. Actually the insurance company will treat each year pro-rata amount of premium received as income.
For example insurance company receives Rs.10000 as premium for 10 years. First it shoud be treated as unearned revenue and then each year Rs.1000 should be shifted from this account to income account.
Question 9
1 / -0

'A three years premium paid on a fire insurance policy' should be classified as _______________.

A
Accrued asset

B
Accrued liability

C
Unearned revenue

D
Prepaid expense

Solution

A prepaid expense refers to an amount that a company has paid and a portion or all of it will be an expense in a later accounting period.
A prepaid expense can be recorded initially as an expense or as a current asset.
Question 10
1 / -0

When item is shown on the debit side of a trial balance?

A
Purchase returns

B
Rent Outstanding

C
Prepaid Expenses

D
None

Solution

A trial balance is the accounting equation of our business laid out in detail. It has our assets, expenses and drawings on the left (the debit side) and our liabilities, revenue and owner's equity on the right (the credit side)
Hence , Prepaid expense is an expense which is shown in Dr. side.

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Re-Attempt Weekly Quiz Competition

Financial Statements 2 Test 7

Result

Financial Statements 2 Test 7

Score

-

Rank

-

SHARING IS CARING

Question 1

Equally

In the profit sharing ratio

In the ratio of capitals

In sacrificing ratio

Solution

Question 2

Are entitled 6% interest on their capitals, only when there are profits

Are entitled 6% interest on their capitals, whether there is profit or not

Are entitled for interest on capital at the bank rate, only when there are profits

Are not entitled for any interest on their capitals

Solution

Question 3

Interest Account

Profit and Loss Account

Drawing Account

Partner's Capital Account

Solution

Question 4

An active partner is entitled for salary and a sleeping partner for interest on capital @ 6% p.a.

An active partner is entitled for salary and each partner for interest on capital @ 6% p.a.

All partners are entitled for salary and interest on capital @ 6%

No partner is entitled for salary or interest on capital

Solution

Question 5

Debts of the firm

Private debts of the partner

Wife's loan

Bank loan of the firm

Solution

Question 6

Accrued assets

Accrued liability

Prepaid expense

Unrearned revenue

Solution

Question 7

Debtors

Sales account

Profit and loss account

Bad debts account

Solution

Question 8

Accrued Asset

Accrued Liability

Prepaid Expense

Unearned Revenue

Solution

Question 9

Accrued asset

Accrued liability

Unearned revenue

Prepaid expense

Solution

Question 10

Purchase returns

Rent Outstanding

Prepaid Expenses

None

Solution

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