Question 1

The variable capital balances method (method 1), requires the profit or loss and partner's drawings to be closed off to each partner's:

Accepted Answer

A)  capital account. 
B)  cash account. 
C)  profit or loss summary account. 
D)  retained earnings accounts. 
A)  capital account. 
B)  cash account. 
C)  profit or loss summary account. 
D)  retained earnings accounts.

Question 2

Macy and John have capital account balances at the end of the year of $100 000 and $25 000 respectively. Profit of the partnership is $105 000. The profit and loss sharing agreement calls for (1) a salary of $40 000 to Macy and $35 000 to John, (2) interest of 5% p.a. on capital balances, (3) the residual profit to be split 80:20 in favour of Macy. Macy's share of the distribution is:

Accepted Answer

A)  $26 000 
B)  $64 000 
C)  $41 000 
D)  $45 000 
A)  $26 000 
B)  $64 000 
C)  $41 000 
D)  $45 000

Question 3

Which of the following would normally be referred to in a partnership agreement?

Accepted Answer

A)  Profit and loss sharing ratios 
B)  Arrangements to terminate the partnership. 
C)  Procedures to follow in the event of a dispute. 
D)  All of these options. 
A)  Profit and loss sharing ratios 
B)  Arrangements to terminate the partnership. 
C)  Procedures to follow in the event of a dispute. 
D)  All of these options.

Question 4

The text refers to two methods of accounting for equity in a partnership, method 1 and method 2; these are:

Accepted Answer

A)  interest and no interest methods. 
B)  cash and credit capital methods. 
C)  variable and fixed capital account methods. 
D)  equal and proportionate profit sharing methods. 
A)  interest and no interest methods. 
B)  cash and credit capital methods. 
C)  variable and fixed capital account methods. 
D)  equal and proportionate profit sharing methods.

Question 5

Tom and Jerry are two sole traders that have joined together to form a partnership by combining their net assets.
Jerry contributes:
 
What will be the amount shown in the accumulated depreciation account on formation of the partnership of Tom and Jerry?

Accepted Answer

A)  $Nil 
B)  $2000 
C)  $3000 
D)  $5000 
A)  $Nil 
B)  $2000 
C)  $3000 
D)  $5000

Question 6

When non-current assets are contributed by a partner they should be recorded in the partnership books at:

Accepted Answer

A)  historic cost. 
B)  depreciable value. 
C)  carrying amount. 
D)  fair value. 
A)  historic cost. 
B)  depreciable value. 
C)  carrying amount. 
D)  fair value.

Question 7

A partner's allocation of the partnership's profit or loss is recorded in the:

Accepted Answer

A)  drawings account. 
B)  balance sheet. 
C)  profit or loss summary account. 
D)  profit distribution account. 
A)  drawings account. 
B)  balance sheet. 
C)  profit or loss summary account. 
D)  profit distribution account.

Question 8

Which of the following is not an advantage of a partnership?

Accepted Answer

A)  Combination of various skills of the individual partners. 
B)  Flexibility in the running of the business. 
C)  The difficulty of transferring partnership interests 
D)  Easier and cheaper to establish. 
A)  Combination of various skills of the individual partners. 
B)  Flexibility in the running of the business. 
C)  The difficulty of transferring partnership interests 
D)  Easier and cheaper to establish.

Question 9

Sole proprietors, Johnny and Simon, decide to form a partnership. Johnny contributes inventory with a fair value of $20 000, machinery with a fair value of $120 000 and it is agreed that the partnership will take over Johnny's bank loan of $50 000. Assuming the partnership agreement states that the balance of partnership capital will be equal to the fair value of the net assets contributed, what is the amount recorded in Johnny's capital account?

Accepted Answer

A)  $70 000 
B)  $90 000 
C)  $120 000 
D)  $140 000 
A)  $70 000 
B)  $90 000 
C)  $120 000 
D)  $140 000

Question 10

The partnership agreement of Snowy and Brodie provides that interest at 2% per annum is to be charged on partners' drawings. During the year ended 31 December drawings by both partners were:
$$\begin{array} { | l | r | r | } 
\hline & \text { Bnowy } & \text { Brodie }  \
\hline \text { 1 March } & \$ 1500 & \
\hline \text { 1 May } & 2700 & \$ 3600 \
\hline \text { 1 July } & & 800 \
\hline \text { 1 August } & 600 & \
\hline \text { 1 October } & & 1200 \
\hline \text { 1 Decernber } & 4200 & \
\hline
\end{array}$$
What is the total amount of interest on drawings chargeable to Brodie's current account for the year?

Accepted Answer

A)  $62 
B)  $73 
C)  $56 
D)  $31 
A)  $62 
B)  $73 
C)  $56 
D)  $31

Question 11

A partnership that is a reporting entity must produce which of these financial statements?
i. Income statement
ii. Balance sheet
iii. Statement of cash flows
iv. Statement of changes in partners' equity

Accepted Answer

A)  i, ii, iii 
B)  i, iii 
C)  i, ii, iii, iv 
D)  None of these statements 
A)  i, ii, iii 
B)  i, iii 
C)  i, ii, iii, iv 
D)  None of these statements

Question 12

Sometimes the partnership agreement may specify that interest is to be charged on partner's drawings. The main reason for such a charge is:

Accepted Answer

A)  to reduce partnership profits. 
B)  to increase the income of the partnership. 
C)  to encourage partner's to withdraw extra amounts. 
D)  to act as a disincentive to partners withdrawing excessive amounts from the partnership. 
A)  to reduce partnership profits. 
B)  to increase the income of the partnership. 
C)  to encourage partner's to withdraw extra amounts. 
D)  to act as a disincentive to partners withdrawing excessive amounts from the partnership.

Question 13

Bonnie and Cathy have a profit and loss sharing agreement where: (1) salaries of $20 000 each are credited, (2) 10% interest is allowed on capital balances (3) the remaining profit or loss is split 60-40 in favour of Bonnie. At the end of the year, before the distribution of profits or losses, capital account balances were $50 000 and $35 000 for Bonnie and Cathy, respectively. Profit for the year was $66 000 before distributions to partners. Assuming capital balances are adjusted to reflect profits and losses, what is Bonnie's ending capital account balance?

Accepted Answer

A)  $89 600 
B)  $64 600 
C)  $85 500 
D)  $35 500 
A)  $89 600 
B)  $64 600 
C)  $85 500 
D)  $35 500

Question 14

The objective of allocating profits and losses is to reward each partner fairly for the resources and services contributed to the partnership. Which of the following factors would not be directly relevant in negotiating a profit and loss sharing agreement for a partnership?

Accepted Answer

A)  The risks assumed by each partner. 
B)  The size of each partner's non-partnership assets. 
C)  Work done by each partner in the partnership. 
D)  Capital contributed by each partner to the partnership. 
A)  The risks assumed by each partner. 
B)  The size of each partner's non-partnership assets. 
C)  Work done by each partner in the partnership. 
D)  Capital contributed by each partner to the partnership.

Question 15

Interest paid on a loan provided by a partner should be:

Accepted Answer

A)  a distribution of profit in the profit or loss distribution account. 
B)  recognised as income for the partner who provided the loan. 
C)  recorded as a prepayment in the balance sheet. 
D)  recognised by the partnership as an expense. 
A)  a distribution of profit in the profit or loss distribution account. 
B)  recognised as income for the partner who provided the loan. 
C)  recorded as a prepayment in the balance sheet. 
D)  recognised by the partnership as an expense.

Question 16

A partner contributes plant and equipment when a partnership is established. The amount recognised by the partnership for this contributed asset is equal to:

Accepted Answer

A)  the carrying amount of the asset at the date of contribution. 
B)  the fair value of the asset at the date of contribution. 
C)  the amount paid by the contributing partner when originally acquiring the asset. 
D)  the same proportion of contributions by other partners. 
A)  the carrying amount of the asset at the date of contribution. 
B)  the fair value of the asset at the date of contribution. 
C)  the amount paid by the contributing partner when originally acquiring the asset. 
D)  the same proportion of contributions by other partners.

Question 17

Simon and Keith have a profit and loss sharing agreement where: (1) salaries of $30 000 each are credited, (2) 6% interest is allowed on capital balances (3) the remaining profit or loss is split 75-25, respectively. At the end of the year, before the distribution of profits or losses, capital account balances were $40 000 for Simon and $20 000 for Keith. There was a profit of $50 000 before distributions to the partners. What is Keith's year-end capital account balance assuming capital balances are adjusted to reflect profits and losses?

Accepted Answer

A)  $47 800 
B)  $54 600 
C)  $62 200 
D)  $82 600 
A)  $47 800 
B)  $54 600 
C)  $62 200 
D)  $82 600

Question 18

The part of the financial statements of a partnership that differs most from that of a sole trader is the:

Accepted Answer

A)  assets section of the balance sheet. 
B)  equity section of the balance sheet. 
C)  expense section of the income statement. 
D)  income section of the income statement. 
A)  assets section of the balance sheet. 
B)  equity section of the balance sheet. 
C)  expense section of the income statement. 
D)  income section of the income statement.

Question 19

The legislation in Australia that is concerned with the formation, operation and dissolution of partnerships is the:

Accepted Answer

A)  Corporations Act. 
B)  Bankruptcy Act. 
C)  Partnership Act. 
D)  Business law Act. 
A)  Corporations Act. 
B)  Bankruptcy Act. 
C)  Partnership Act. 
D)  Business law Act.

Question 20

The legislation with the most significant influence on the formation, operation and dissolution of partnerships is the:

Accepted Answer

A)  Partnership Act. 
B)  Federal Partnership Act. 
C)  Common Partnership Program. 
D)  Partnership Formation, Operation and Liquidation Rules. 
A)  Partnership Act. 
B)  Federal Partnership Act. 
C)  Common Partnership Program. 
D)  Partnership Formation, Operation and Liquidation Rules.

The variable capital balances method (method 1), requires the profit or loss and partner's drawings to be closed off to each partner's:

Which of the following would normally be referred to in a partnership agreement?

The text refers to two methods of accounting for equity in a partnership, method 1 and method 2; these are:

Tom and Jerry are two sole traders that have joined together to form a partnership by combining their net assets. Jerry contributes: What will be the amount shown in the accumulated depreciation account on formation of the partnership of Tom and Jerry?

When non-current assets are contributed by a partner they should be recorded in the partnership books at:

A partner's allocation of the partnership's profit or loss is recorded in the:

Which of the following is not an advantage of a partnership?

A partnership that is a reporting entity must produce which of these financial statements? i. Income statement ii. Balance sheet iii. Statement of cash flows iv. Statement of changes in partners' equity

Sometimes the partnership agreement may specify that interest is to be charged on partner's drawings. The main reason for such a charge is:

The objective of allocating profits and losses is to reward each partner fairly for the resources and services contributed to the partnership. Which of the following factors would not be directly relevant in negotiating a profit and loss sharing agreement for a partnership?

Interest paid on a loan provided by a partner should be:

A partner contributes plant and equipment when a partnership is established. The amount recognised by the partnership for this contributed asset is equal to:

The part of the financial statements of a partnership that differs most from that of a sole trader is the:

The legislation in Australia that is concerned with the formation, operation and dissolution of partnerships is the:

The legislation with the most significant influence on the formation, operation and dissolution of partnerships is the:

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

Filters

Exam 8: Partnerships: Formation, Operation and Reporting

The variable capital balances method (method 1), requires the profit or loss and partner's drawings to be closed off to each partner's:

Which of the following would normally be referred to in a partnership agreement?

The text refers to two methods of accounting for equity in a partnership, method 1 and method 2; these are:

Tom and Jerry are two sole traders that have joined together to form a partnership by combining their net assets. Jerry contributes: What will be the amount shown in the accumulated depreciation account on formation of the partnership of Tom and Jerry?

When non-current assets are contributed by a partner they should be recorded in the partnership books at:

A partner's allocation of the partnership's profit or loss is recorded in the:

Which of the following is not an advantage of a partnership?

A partnership that is a reporting entity must produce which of these financial statements? i. Income statement ii. Balance sheet iii. Statement of cash flows iv. Statement of changes in partners' equity

Sometimes the partnership agreement may specify that interest is to be charged on partner's drawings. The main reason for such a charge is:

The objective of allocating profits and losses is to reward each partner fairly for the resources and services contributed to the partnership. Which of the following factors would not be directly relevant in negotiating a profit and loss sharing agreement for a partnership?

Interest paid on a loan provided by a partner should be:

A partner contributes plant and equipment when a partnership is established. The amount recognised by the partnership for this contributed asset is equal to:

The part of the financial statements of a partnership that differs most from that of a sole trader is the:

The legislation in Australia that is concerned with the formation, operation and dissolution of partnerships is the:

The legislation with the most significant influence on the formation, operation and dissolution of partnerships is the:

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

Filters