Question 1

Partner's drawings are:

Accepted Answer

A)  amounts credited for working in the partnership. 
B)  partner's artwork. 
C)  cash amounts withdrawn or private expenses paid by the partnership on behalf of a partner, in anticipation of profits. 
D)  money borrowed from the partnership. 
A)  amounts credited for working in the partnership. 
B)  partner's artwork. 
C)  cash amounts withdrawn or private expenses paid by the partnership on behalf of a partner, in anticipation of profits. 
D)  money borrowed from the partnership. C

Question 2

Gemma and Audrey are in partnership. Their capital balances at the end of the accounting period are $200 000 and $150 000 respectively. Gemma decides to make a permanent cash withdrawal from her capital account of $75 000. Assuming the fixed capital balances method (method 2) is used, the accounting entry to record this transaction is:

Accepted Answer

A)  DR Gemma capital account $75 000; CR Profit distribution account $75 000 
B)  DR Gemma capital account $75 000; CR Bank account $75 000 
C)  DR Gemma retained earnings account $75 000; CR Profit distribution account $75 000 
D)  DR Gemma retained earnings account $75 000; CR Bank account $75 000 
A)  DR Gemma capital account $75 000; CR Profit distribution account $75 000 
B)  DR Gemma capital account $75 000; CR Bank account $75 000 
C)  DR Gemma retained earnings account $75 000; CR Profit distribution account $75 000 
D)  DR Gemma retained earnings account $75 000; CR Bank account $75 000 B

Question 3

Accountants do not recognise internally generated goodwill because:

Accepted Answer

A)  it is immaterial. 
B)  it is not a partnership asset. 
C)  it cannot be measured reliably. 
D)  it will not provide a future economic benefit. 
A)  it is immaterial. 
B)  it is not a partnership asset. 
C)  it cannot be measured reliably. 
D)  it will not provide a future economic benefit. C

Question 4

Louise and Thelma are in partnership sharing residual profits and losses 50:50. The profit for the year is $96 000. Thelma is entitled to a salary of $40 000 per annum (to be paid by means of a book entry). The amount credited to Thelma's retained earnings account after the final distribution of profits is:

Accepted Answer

A)  $88 000 
B)  $48 000 
C)  $28 000 
D)  $68 000 
A)  $88 000 
B)  $48 000 
C)  $28 000 
D)  $68 000

Question 5

Which of the following is not a feature of the variable capital balances method (method 1) of accounting for partnership equity?

Accepted Answer

A)  Each partner has one permanent capital account. 
B)  Partner's drawings are closed to their capital accounts. 
C)  Interest on capital is credited to the partners retained earnings accounts. 
D)  The profit or loss distribution account is closed to the partner's capital accounts. 
A)  Each partner has one permanent capital account. 
B)  Partner's drawings are closed to their capital accounts. 
C)  Interest on capital is credited to the partners retained earnings accounts. 
D)  The profit or loss distribution account is closed to the partner's capital accounts.

Question 6

Which of the following is an advantage of a partnership over a sole proprietorship?

Accepted Answer

A)  Transfer of ownership is easier. 
B)  Liability is unlimited. 
C)  Pooling of resources and skills 
D)  Mutual agency. 
A)  Transfer of ownership is easier. 
B)  Liability is unlimited. 
C)  Pooling of resources and skills 
D)  Mutual agency.

Question 7

Bert and Ernie agree to share profits and losses in the ratios 6:4. If the net loss is $30,000, how much loss is allocated to each partner?

Accepted Answer

A)  Bert $18 000; Ernie $12 000 
B)  Bert $12 000; Ernie $18 000 
C)  Bert $20 000; Ernie $10 000 
D)  Bert $26 000; Ernie $4 000 
A)  Bert $18 000; Ernie $12 000 
B)  Bert $12 000; Ernie $18 000 
C)  Bert $20 000; Ernie $10 000 
D)  Bert $26 000; Ernie $4 000

Question 8

Gemma and Audrey are in partnership. Their capital balances at the end of the accounting period are $200 000 and $150 000 respectively. Gemma decides to make a permanent cash withdrawal from her capital account of $75 000. Assuming the variable capital balances method (method 1) is used, the correct accounting entry to record this transaction is:

Accepted Answer

A)  DR Gemma - Retained earnings account $75 000; CR Cash account $75 000 
B)  DR Gemma - Capital account $75 000; CR Cash account $75 000 
C)  DR Gemma - Capital account $75 000; CR Profit distribution account $75 000 
D)  DR Gemma - Retained earnings account $75 000; CR Profit distribution account $75 000 
A)  DR Gemma - Retained earnings account $75 000; CR Cash account $75 000 
B)  DR Gemma - Capital account $75 000; CR Cash account $75 000 
C)  DR Gemma - Capital account $75 000; CR Profit distribution account $75 000 
D)  DR Gemma - Retained earnings account $75 000; CR Profit distribution account $75 000

Question 9

Which of the following would not result in the automatic dissolution of a partnership?

Accepted Answer

A)  A partner's illness 
B)  The bankruptcy of a partner 
C)  The death of a partner 
D)  The admission of a new partner 
A)  A partner's illness 
B)  The bankruptcy of a partner 
C)  The death of a partner 
D)  The admission of a new partner

Question 10

Which of the following is a not a disadvantage of operating as a partnership rather than as a company?

Accepted Answer

A)  Fewer disclosure requirements 
B)  Greater difficulty in selling a share of the business. 
C)  Personal liability for all obligations of the partnership. 
D)  Partners can act on behalf of the other partners and bind them to a contract by acting within the apparent scope of the business. 
A)  Fewer disclosure requirements 
B)  Greater difficulty in selling a share of the business. 
C)  Personal liability for all obligations of the partnership. 
D)  Partners can act on behalf of the other partners and bind them to a contract by acting within the apparent scope of the business.

Question 11

Cameron and Andrew each invested $45 000 in a partnership where they agreed to share profits as Cameron: 30%; Andrew 70% . The partnership business was unsuccessful and now has zero assets. In addition, they are being sued for $100 000 by a supplier for non-payment of invoices. What is the amount for which Andrew could be held personally responsible if the lawsuit is successful? (Ignore any possible legal costs.)

Accepted Answer

A)  Zero 
B)  $45 000 
C)  $70 000 
D)  $100 000 
A)  Zero 
B)  $45 000 
C)  $70 000 
D)  $100 000

Question 12

Which of the following statements relating to a 'general partnership' is incorrect?

Accepted Answer

A)  Each partner is liable for the debts of the partnership only in proportion to their original contribution. 
B)  It is the most common form of partnership. 
C)  Each partner is personally liable for the obligations of the partnership. 
D)  Partners have unlimited liability. 
A)  Each partner is liable for the debts of the partnership only in proportion to their original contribution. 
B)  It is the most common form of partnership. 
C)  Each partner is personally liable for the obligations of the partnership. 
D)  Partners have unlimited liability.

Question 13

Which of the following statements concerning partnership agreements is true?

Accepted Answer

A)  The partnership agreement must be in writing. 
B)  The contractual authority of each partner should be specified. 
C)  Partner's must always contribute equal amounts of capital. 
D)  It is not necessary to specify the duration of the partnership. 
A)  The partnership agreement must be in writing. 
B)  The contractual authority of each partner should be specified. 
C)  Partner's must always contribute equal amounts of capital. 
D)  It is not necessary to specify the duration of the partnership.

Question 14

The relationship that exists between persons carrying on a business in common with a view to profit is referred to as a:

Accepted Answer

A)  company. 
B)  proprietorship. 
C)  retailer. 
D)  partnership. 
A)  company. 
B)  proprietorship. 
C)  retailer. 
D)  partnership.

Question 15

Assets contributed to a partnership should be initially recorded at:

Accepted Answer

A)  replacement value. 
B)  carrying amount. 
C)  fair value. 
D)  historical cost. 
A)  replacement value. 
B)  carrying amount. 
C)  fair value. 
D)  historical cost.

Question 16

After completion of the closing entries, the profit distribution account in a partnership always has a:

Accepted Answer

A)  nil balance. 
B)  debit balance. 
C)  credit balance. 
D)  negative balance. 
A)  nil balance. 
B)  debit balance. 
C)  credit balance. 
D)  negative balance.

Question 17

Only _________________goodwill should be recorded in the balance sheet.

Accepted Answer

A)  customer. 
B)  internally generated. 
C)  purchased. 
D)  current. 
A)  customer. 
B)  internally generated. 
C)  purchased. 
D)  current.

Question 18

Paula and Penny have capital balances of $120 000 and $150 000 respectively and use the variable capital balances method. If their profit/loss sharing ratios are Paula 40% and Penny 60%, the balance of Penny's capital balance after a profit of $60 000 is:

Accepted Answer

A)  $114 000 
B)  $150 000 
C)  $174 000 
D)  $186 000 
A)  $114 000 
B)  $150 000 
C)  $174 000 
D)  $186 000

Question 19

Which of these is not a provision of the Partnership Act?

Accepted Answer

A)  No person may be expelled from the partnership without the consent of all existing partners. 
B)  A partner is entitled to interest on money advanced to the partnership that is in addition to their original contribution. 
C)  Each partner is permitted to withdraw up to 20% of their capital per annum for personal use. 
D)  Partners are entitled to share equally in the capital of the partnership. 
A)  No person may be expelled from the partnership without the consent of all existing partners. 
B)  A partner is entitled to interest on money advanced to the partnership that is in addition to their original contribution. 
C)  Each partner is permitted to withdraw up to 20% of their capital per annum for personal use. 
D)  Partners are entitled to share equally in the capital of the partnership.

Question 20

Which statement concerning drawings by partners in a partnership is correct?

Accepted Answer

A)  Drawings are generally regarded as withdrawals of future profits. 
B)  Drawings are taken into account when calculating the final distribution of profit between the partners. 
C)  Interest is charged on drawings if the partnership agreement is silent on the matter. 
D)  Charging interest on drawings acts as an incentive to partners to withdraw money from the partnership. 
A)  Drawings are generally regarded as withdrawals of future profits. 
B)  Drawings are taken into account when calculating the final distribution of profit between the partners. 
C)  Interest is charged on drawings if the partnership agreement is silent on the matter. 
D)  Charging interest on drawings acts as an incentive to partners to withdraw money from the partnership.

Exam 8: Partnerships: Formation, Operation and Reporting

Partner's drawings are:

Accountants do not recognise internally generated goodwill because:

Which of the following is not a feature of the variable capital balances method (method 1) of accounting for partnership equity?

Which of the following is an advantage of a partnership over a sole proprietorship?

Bert and Ernie agree to share profits and losses in the ratios 6:4. If the net loss is $30,000, how much loss is allocated to each partner?

Which of the following would not result in the automatic dissolution of a partnership?

Which of the following is a not a disadvantage of operating as a partnership rather than as a company?

Which of the following statements relating to a 'general partnership' is incorrect?

Which of the following statements concerning partnership agreements is true?

The relationship that exists between persons carrying on a business in common with a view to profit is referred to as a:

Assets contributed to a partnership should be initially recorded at:

After completion of the closing entries, the profit distribution account in a partnership always has a:

Only _________________goodwill should be recorded in the balance sheet.

Paula and Penny have capital balances of $120 000 and $150 000 respectively and use the variable capital balances method. If their profit/loss sharing ratios are Paula 40% and Penny 60%, the balance of Penny's capital balance after a profit of $60 000 is:

Which of these is not a provision of the Partnership Act?

Which statement concerning drawings by partners in a partnership is correct?

Decision Making and the Role of Accounting

Financial Statements for Decision Making

Recording Transactions

Adjusting the Accounts and Preparing Financial Statements

Completing the Accounting Cycle Closing and Reversing Entries

Accounting for Retailing

Accounting for Systems

Companies: Formation and Operations

Regulation and the Conceptual Framework

Cash Management and Control

Receivables

Inventories

Non-Current Assets: Acquisition and Depreciation

Non-Current Assets: Revaluation, Disposal and Other Aspects

Liabilities

Presentation of Financial Statements

Statement of Cash Flows

Analysis and Interpretation of Financial Statements

Accounting for Manufacturing

Cost Accounting Systems

Cost-Volume-Profit Analysis for Decision Making

Budgeting for Planning and Control

Performance Evaluation for Managers

Differential Analysis, Profitability Analysis and Capital Budgeting

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