Question 1

Partners can invest assets but not liabilities into a partnership.

Accepted Answer

A) True 
 B)False  False

Question 2

If a company wants to protect its three investors against personal liability risk, which of the following business forms would not be a suitable option?

Accepted Answer

A) Limited liability partnership 
B) S Corporation 
C) Partnership 
D) C Corporation 
E) Limited liability company 
A) Limited liability partnership 
B) S Corporation 
C) Partnership 
D) C Corporation 
E) Limited liability company C

Question 3

The income or loss of a partnership is allocated to the partners according to the partnership agreement, and it is included in determining the taxable income for each partner's tax return.

Accepted Answer

A) True 
 B)False  True

Question 4

When a partner is added to a partnership:

Accepted Answer

A) The partnership equity always increases. 
B) The partnership must continue. 
C) The underlying business operations end. 
D) The underlying business operations must close and then re-open. 
E) The previous partnership ends. 
A) The partnership equity always increases. 
B) The partnership must continue. 
C) The underlying business operations end. 
D) The underlying business operations must close and then re-open. 
E) The previous partnership ends.

Question 5

A partnership is an incorporated association of two or more people to pursue a business for profit as co-owners.

Accepted Answer

A) True 
 B)False

Question 6

In a limited partnership the general partner has unlimited liability.

Accepted Answer

A) True 
 B)False

Question 7

Olivia Greer is a partner in Made for You. An analysis of Greer's capital account indicates that during the most recent year, she withdrew $30,000 from the partnership. Her share of the partnership's net loss was $16,000 and she made an additional equity contribution of $10,000. Her capital account ended the year at $150,000. What was her capital balance at the beginning of the year?

Accepted Answer

A) $186,000 
B) $196,000 
C) $170,000 
D) $180,000 
E) $154,000 
A) $186,000 
B) $196,000 
C) $170,000 
D) $180,000 
E) $154,000

Question 8

The following information is available on PDC Enterprises, a partnership, for the most recent fiscal year: $$\begin{array} { l r } 
\text { Total partnership capital at beginning of the year } & \$ 1,080,000 \
\text { Partnership net income for the year } & \$ 1,250,000 \
\text { Withdrawals by partners during the year } & \$ 320,000 \
\text { Additional investments by partners during the year } & \$ 70,000
\end{array}$$ There are three partners in TGR Enterprises: Pearson, Darling and Cathay. At the end of the year, the partners' capital accounts were in the ratio of 2:2:1, respectively. Compute the ending capital balances of Cathay.

Accepted Answer

A) $544,000. 
B) $416,000. 
C) $402,000. 
D) $466,000. 
E) $388,000. 
A) $544,000. 
B) $416,000. 
C) $402,000. 
D) $466,000. 
E) $388,000.

Question 9

Cinema Products LP is organized as a limited partnership that sells movie props. Information related to capital balances is given below. Compute the partner return on equity for each limited partner. How would each partner evaluate the success of the partnership? What would you recommend the partners do with respect to additional investments or withdrawals?
 $$\begin{array} { l r r r } 
& \text { Turner } & \text { Kelly } & \text { Total } \
\text { Capital balance, beginning of year } & 890,000 & 570,000 & 1,460,000 \
\text { Net income for current year } & 85,000 & 65,000 & 150,000 \
\text { Withdrawals for current year } & 40,000 & 25,000 & 65,000
\end{array}$$

Accepted Answer

Partner return on equity = Partner net i

Question 10

Cox, North, and Lee form a partnership. Cox contributes $180,000, North contributes $150,000, and Lee contributes $270,000. Their partnership agreement calls for a 5% interest allowance on the partner's capital balances with the remaining income or loss to be allocated equally. If the partnership reports income of $174,000 for its first year, what amount of income is credited to Lee's capital account?

Accepted Answer

A) $55,500. 
B) $61,500. 
C) $57,000. 
D) $48,000. 
E) $58,000. 
A) $55,500. 
B) $61,500. 
C) $57,000. 
D) $48,000. 
E) $58,000.

Question 11

Farmer and Taylor formed a partnership with capital contributions of $200,000 and $250,000, respectively. Their partnership agreement calls for Farmer to receive a $70,000 per year salary. The remaining income or loss is to be divided equally. Assuming net loss for the current year is $15,000, the journal entry to allocate the net loss is:

Accepted Answer

A) Debit Income Summary, $15,000; Credit Taylor, Capital, $7,500; Credit Farmer, Capital, $7,500. 
B) Debit Taylor, Capital, $42,500; Credit Income Summary, $15,000; Credit Farmer, Capital, $27,500. 
C) Debit Income Summary, $15,000; Debit Taylor, Capital, $27,500; Credit Taylor, Capital, $32,500. 
D) Debit Income Summary, $15,000; Debit Farmer, Capital, $27,500; Credit Taylor, Capital, $42,500. 
E) Debit Income Summary, $15,000; Credit Farmer, Capital, $7,500; Credit Taylor, Capital, $7,500. 
A) Debit Income Summary, $15,000; Credit Taylor, Capital, $7,500; Credit Farmer, Capital, $7,500. 
B) Debit Taylor, Capital, $42,500; Credit Income Summary, $15,000; Credit Farmer, Capital, $27,500. 
C) Debit Income Summary, $15,000; Debit Taylor, Capital, $27,500; Credit Taylor, Capital, $32,500. 
D) Debit Income Summary, $15,000; Debit Farmer, Capital, $27,500; Credit Taylor, Capital, $42,500. 
E) Debit Income Summary, $15,000; Credit Farmer, Capital, $7,500; Credit Taylor, Capital, $7,500.

Question 12

A partnership agreement:

Accepted Answer

A) Is also called the articles of incorporation. 
B) Does not generally address the issue of the rights and duties of the partners. 
C) Is the same as a limited liability partnership. 
D) Is not binding unless it is in writing. 
E) Is binding even if it is not in writing. 
A) Is also called the articles of incorporation. 
B) Does not generally address the issue of the rights and duties of the partners. 
C) Is the same as a limited liability partnership. 
D) Is not binding unless it is in writing. 
E) Is binding even if it is not in writing.

Question 13

Christie and Jergens formed a partnership with capital contributions of $300,000 and $400,000, respectively. Their partnership agreement calls for Christie to receive a $60,000 per year salary. Also, each partner is to receive an interest allowance equal to 10% of a partner's beginning capital investments. The remaining income or loss is to be divided equally. If the net income for the current year is $135,000, then Christie and Jergens's respective shares are:

Accepted Answer

A) $35,000; $100,000. 
B) $90,000; $40,000. 
C) $57,857; $77,143. 
D) $67,500; $67,500. 
E) $92,500; $42,500. 
A) $35,000; $100,000. 
B) $90,000; $40,000. 
C) $57,857; $77,143. 
D) $67,500; $67,500. 
E) $92,500; $42,500.

Question 14

Feldt is a partner in Feldt & Dodson Company. Feldt's share of the partnership income is $18,600 and her average partnership equity is $155,000. Her partner return on equity equals 8.33.

Accepted Answer

A) True 
 B)False

Question 15

Mutual agency implies that each partner in a partnership is a fully authorized agent of the partnership. Which of the following statements is correct regarding the authority of a partner to bind the partnership in dealings with third parties?

Accepted Answer

A) Only a partner with a majority interest in a partnership has the authority to represent the partnership to third parties. 
B) A partner has authority to deal with third parties on the behalf of the other partners only if he has written permission to do so. 
C) The partner's authority must be derived from the partnership agreement. 
D) The partner's authority may be effectively limited by a formal resolution of the other partners, even if third parties are not aware of that limitation. 
E) A partner may be able to legally bind the partnership to actions even if the other partners are unaware of his actions. 
A) Only a partner with a majority interest in a partnership has the authority to represent the partnership to third parties. 
B) A partner has authority to deal with third parties on the behalf of the other partners only if he has written permission to do so. 
C) The partner's authority must be derived from the partnership agreement. 
D) The partner's authority may be effectively limited by a formal resolution of the other partners, even if third parties are not aware of that limitation. 
E) A partner may be able to legally bind the partnership to actions even if the other partners are unaware of his actions.

Question 16

Farmer and Taylor formed a partnership with capital contributions of $200,000 and $250,000, respectively. Their partnership agreement calls for Farmer to receive a $70,000 per year salary. The remaining income or loss is to be divided equally. If the net income for the current year is $135,000, then Farmer and Taylor's respective shares are:

Accepted Answer

A) $90,000; $45,000. 
B) $106,140; $28,860. 
C) $67,500; $67,500. 
D) $102,500; $32,500. 
E) $130,000; $5,000. 
A) $90,000; $45,000. 
B) $106,140; $28,860. 
C) $67,500; $67,500. 
D) $102,500; $32,500. 
E) $130,000; $5,000.

Question 17

The following information is available regarding Grace Smit's capital account in Enterprise Consulting Group, a general partnership, for a recent year: $\begin{array}{ll}
\text { Beginning of the ye ar balance } & \$ 22,000 \
\text { Share of partnership income } & \$ 8,500 \
\text { Withdrawals made during the year } & \$ 6,000
\end{array}$ What is Smit's partner return on equity during the year in question?

Accepted Answer

A) 34.7% 
B) 55.7% 
C) 10.8% 
D) 36.6% 
E) 11.4% 
A) 34.7% 
B) 55.7% 
C) 10.8% 
D) 36.6% 
E) 11.4%

Question 18

Certain corporations with 100 or fewer stockholders can elect to be treated as a partnership for income tax purposes. These corporations are called Subchapter S or simply S corporations.

Accepted Answer

A) True 
 B)False

Question 19

When partners invest in a partnership, their capital accounts are debited for the amount invested.

Accepted Answer

A) True 
 B)False

Question 20

Zheng invested $100,000 and Murray invested $200,000 in a partnership. They agreed to share incomes and losses by allowing a $60,000 per year salary allowance to Zheng and a $40,000 per year salary allowance to Murray, plus an interest allowance on the partners' beginning-year capital investments at 10%, with the balance to be shared equally. Assuming net income for the current year is $105,000, the journal entry to allocate net income is:

Accepted Answer

A) Debit Income Summary, $105,000; Credit Zheng, Capital, $52,500, Credit Murray, Capital, $52,500. 
B) Debit Zheng, Capital, $57,500, Debit Murray, Capital, $47,500; Credit Income Summary, $105,000; 
C) Debit Income Summary, $105,000; Credit Zheng, Capital, $35,000, Credit Murray, Capital, $70,000. 
D) Debit Income Summary, $105,000; Credit Zheng, Capital, $57,500, Credit Murray, Capital, $47,500. 
E) Debit Income Summary, $105,000; Credit Zheng, Capital, $42,500, Credit Murray, Capital, $62,500. 
A) Debit Income Summary, $105,000; Credit Zheng, Capital, $52,500, Credit Murray, Capital, $52,500. 
B) Debit Zheng, Capital, $57,500, Debit Murray, Capital, $47,500; Credit Income Summary, $105,000; 
C) Debit Income Summary, $105,000; Credit Zheng, Capital, $35,000, Credit Murray, Capital, $70,000. 
D) Debit Income Summary, $105,000; Credit Zheng, Capital, $57,500, Credit Murray, Capital, $47,500. 
E) Debit Income Summary, $105,000; Credit Zheng, Capital, $42,500, Credit Murray, Capital, $62,500.

Partners can invest assets but not liabilities into a partnership.

If a company wants to protect its three investors against personal liability risk, which of the following business forms would not be a suitable option?

The income or loss of a partnership is allocated to the partners according to the partnership agreement, and it is included in determining the taxable income for each partner's tax return.

When a partner is added to a partnership:

A partnership is an incorporated association of two or more people to pursue a business for profit as co-owners.

In a limited partnership the general partner has unlimited liability.

A partnership agreement:

Feldt is a partner in Feldt & Dodson Company. Feldt's share of the partnership income is $18,600 and her average partnership equity is $155,000. Her partner return on equity equals 8.33.

Mutual agency implies that each partner in a partnership is a fully authorized agent of the partnership. Which of the following statements is correct regarding the authority of a partner to bind the partnership in dealings with third parties?

Certain corporations with 100 or fewer stockholders can elect to be treated as a partnership for income tax purposes. These corporations are called Subchapter S or simply S corporations.

When partners invest in a partnership, their capital accounts are debited for the amount invested.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resoures, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Filters

Exam 12: Accounting for Partnerships

Partners can invest assets but not liabilities into a partnership.

If a company wants to protect its three investors against personal liability risk, which of the following business forms would not be a suitable option?

The income or loss of a partnership is allocated to the partners according to the partnership agreement, and it is included in determining the taxable income for each partner's tax return.

When a partner is added to a partnership:

A partnership is an incorporated association of two or more people to pursue a business for profit as co-owners.

In a limited partnership the general partner has unlimited liability.

A partnership agreement:

Feldt is a partner in Feldt & Dodson Company. Feldt's share of the partnership income is $18,600 and her average partnership equity is $155,000. Her partner return on equity equals 8.33.

Mutual agency implies that each partner in a partnership is a fully authorized agent of the partnership. Which of the following statements is correct regarding the authority of a partner to bind the partnership in dealings with third parties?

Certain corporations with 100 or fewer stockholders can elect to be treated as a partnership for income tax purposes. These corporations are called Subchapter S or simply S corporations.

When partners invest in a partnership, their capital accounts are debited for the amount invested.

Accounting in Business

Analyzing and Recording Transactions

Adjusting Accounts and Preparing Financial Statements

Completing the Accounting Cycle

Accounting for Merchandising Operations

Inventories and Cost of Sales

Accounting Information Systems

Cash and Internal Controls

Accounting for Receivables

Plant Assets, Natural Resoures, and Intangibles

Current Liabilities and Payroll Accounting

Accounting for Corporations

Long-Term Liabilities

Investments and International Operations

Reporting the Statement of Cash Flows

Analysis of Financial Statements

Filters