Question 1

Which of these is an advantage of a partnership over a sole proprietorship?

Accepted Answer

A)  Ease of transferring ownership 
B)  Unlimited liability 
C)  Mutual agency 
D)  Pooling of resources 
A)  Ease of transferring ownership 
B)  Unlimited liability 
C)  Mutual agency 
D)  Pooling of resources D

Question 2

If accounts receivable are contributed when a partnership is established its fair value is recorded as the:

Accepted Answer

A)  gross amount. 
B)  gross amount less a separate credit entry for allowance for doubtful debts. 
C)  historical cost. 
D)  disposal value. 
A)  gross amount. 
B)  gross amount less a separate credit entry for allowance for doubtful debts. 
C)  historical cost. 
D)  disposal value. B

Question 3

When preparing the closing entries for a partnership at the end of the accounting period which of these statements is true? Assume that capital account balances are not fixed.

Accepted Answer

A)  The drawings accounts are closed to the capital accounts. 
B)  The retained earnings account is closed to the profit or loss summary account. 
C)  Income and expenses are closed to the capital accounts. 
D)  The profit or loss summary account is closed to the retained earnings accounts. 
A)  The drawings accounts are closed to the capital accounts. 
B)  The retained earnings account is closed to the profit or loss summary account. 
C)  Income and expenses are closed to the capital accounts. 
D)  The profit or loss summary account is closed to the retained earnings accounts. A

Question 4

Fatima and Jaddon have capital balances of $50 000 and $80 000, respectively and use the variable capital balances method. If their profit/loss sharing ratios are Fatima 40% and Jaddon 60%, calculate Fatima's capital balance after the net loss of $60 000 is distributed.

Accepted Answer

A)  $74 000 
B)  $26 000 
C)  $50 000 
D)  $20 000 
A)  $74 000 
B)  $26 000 
C)  $50 000 
D)  $20 000

Question 5

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

Accepted Answer

A)  No person may be introduced as a partner without the consent of all existing partners. 
B)  Each partner is allowed to withdraw a maximum of 25% of their capital per annum. 
C)  A partner is not entitled to interest on the capital subscribed by him/her. 
D)  Partners are entitled to share equally in the partnership profits. 
A)  No person may be introduced as a partner without the consent of all existing partners. 
B)  Each partner is allowed to withdraw a maximum of 25% of their capital per annum. 
C)  A partner is not entitled to interest on the capital subscribed by him/her. 
D)  Partners are entitled to share equally in the partnership profits.

Question 6

The characteristic of a partnership whereby each partner is liable for partnership debts to the full extent of his or her private assets is known as:

Accepted Answer

A)  limited life. 
B)  unlimited liability. 
C)  limited liability. 
D)  mutual agency. 
A)  limited life. 
B)  unlimited liability. 
C)  limited liability. 
D)  mutual agency.

Question 7

Michael and Brian each invested $65 000 in a partnership where they agreed to share profits 40% Michael, 60% Brian. The partnership business was not successful and now has no assets. In addition they are being sued for $70 000 by a supplier for non- payment of invoices. What is the amount for which Michael could be held personally responsible if the lawsuit is successful? (Ignore any possible legal costs.)

Accepted Answer

A)  Zero 
B)  $28 000 
C)  $65 000 
D)  $75 000 
A)  Zero 
B)  $28 000 
C)  $65 000 
D)  $75 000

Question 8

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

Accepted Answer

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

Question 9

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

Accepted Answer

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

Question 10

Partner's drawings are:

Accepted Answer

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

Question 11

Jemma and Sally are in partnership. Their capital balances at the end of the accounting period are $200 000 and $150 000 respectively. Jemma decides to make a permanent cash withdrawal from her capital account of $50 000. If it is assumed that they use the fixed capital balances method (method 2), what is the accounting entry to record this transaction?

Accepted Answer

A)  Debit Jemma capital account $50 000; credit profit distribution account $50 000 
B)  Debit Jemma retained earnings account $50 000; credit profit distribution account $50 000 
C)  Debit Jemma capital account $50 000; credit bank account $50 000 
D)  Debit Jemma retained earnings account $50 000; credit bank account $50 000 
A)  Debit Jemma capital account $50 000; credit profit distribution account $50 000 
B)  Debit Jemma retained earnings account $50 000; credit profit distribution account $50 000 
C)  Debit Jemma capital account $50 000; credit bank account $50 000 
D)  Debit Jemma retained earnings account $50 000; credit bank account $50 000

Question 12

When a partner makes an advance or loan to the partnership, how many of these statements are true?
F1F1F1S1F1F1F10F1F1F1S1F1F1F10F1F1F1S1F1F1F10He/she is entitled to interest at the rate of 7% p.a. unless there is an agreement to the contrary.
F1F1F1S1F1F1F10F1F1F1S1F1F1F10F1F1F1S1F1F1F10The amount loaned is added to the partners equity account balance.
F1F1F1S1F1F1F10F1F1F1S1F1F1F10F1F1F1S1F1F1F10Interest on the loan is regarded as an expense of the partnership and appears in the income statement.

Accepted Answer

A)  0 
B)  1 
C)  2 
D)  3 
A)  0 
B)  1 
C)  2 
D)  3

Question 13

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

Accepted Answer

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

Question 14

How is the allocation of partnership profits affected by drawings?

Accepted Answer

A)  Drawings must be added back to profits before they are allocated. 
B)  Drawings must be deducted from profits before they are allocated. 
C)  Drawings only affect profit allocation if the partnership agreement provides for interest on drawings. 
D)  Drawings must be deducted from salaries due to the partners. 
A)  Drawings must be added back to profits before they are allocated. 
B)  Drawings must be deducted from profits before they are allocated. 
C)  Drawings only affect profit allocation if the partnership agreement provides for interest on drawings. 
D)  Drawings must be deducted from salaries due to the partners.

Question 15

If the variable capital balances method (method 1) is used, the profit or loss and partner's drawings are closed to the:

Accepted Answer

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

Question 16

Which of these is not a feature of the fixed capital balances method (method 2) of accounting for partnership equity?

Accepted Answer

A)  Each partner has two permanent equity accounts, a capital account and a retained earnings account. 
B)  Apart from the initial investment very few adjustments are made to the capital account. 
C)  Partner's drawings are closed to their capital accounts. 
D)  The profit or loss distribution account is closed to the partner's retained earnings accounts. 
A)  Each partner has two permanent equity accounts, a capital account and a retained earnings account. 
B)  Apart from the initial investment very few adjustments are made to the capital account. 
C)  Partner's drawings are closed to their capital accounts. 
D)  The profit or loss distribution account is closed to the partner's retained earnings accounts.

Question 17

Accounting for a partnership is similar to accounting for a sole trader, except that:

Accepted Answer

A)  tax must be calculated by the partnership on each partner's share of profit. 
B)  each partner's share of equity must be recorded separately. 
C)  two income statements must be prepared. 
D)  each partner has limited liability. 
A)  tax must be calculated by the partnership on each partner's share of profit. 
B)  each partner's share of equity must be recorded separately. 
C)  two income statements must be prepared. 
D)  each partner has limited liability.

Question 18

Which statement concerning partnerships is true?

Accepted Answer

A)  A partnership agreement must be in writing. 
B)  If all existing partners must approve a new partner this may make it difficult to sell an interest in a partnership. 
C)  Partner's capital accounts must always have equal balances. 
D)  The profit or loss is determined in the profit distribution account and is distributed to the partners in the profit summary account. 
A)  A partnership agreement must be in writing. 
B)  If all existing partners must approve a new partner this may make it difficult to sell an interest in a partnership. 
C)  Partner's capital accounts must always have equal balances. 
D)  The profit or loss is determined in the profit distribution account and is distributed to the partners in the profit summary account.

Question 19

Simon and Keith have a profit and loss sharing agreement where: (1) salaries of $25 000 each are credited, (2) 8% interest is allowed on capital balances (3) the remaining profit or loss is split 60-40, 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)  $43 080 
B)  $44 680 
C)  $46 600 
D)  $24 680 
A)  $43 080 
B)  $44 680 
C)  $46 600 
D)  $24 680

Question 20

Mutual agency means:

Accepted Answer

A)  unlimited liability for partnership debts. 
B)  sharing partnership resources. 
C)  that each partner is an agent for the partnership and can bind the other partners when acting within the normal scope of business. 
D)  consigning goods to other entities on a commission basis to increase sales. 
A)  unlimited liability for partnership debts. 
B)  sharing partnership resources. 
C)  that each partner is an agent for the partnership and can bind the other partners when acting within the normal scope of business. 
D)  consigning goods to other entities on a commission basis to increase sales.

Exam 15: Partnerships: Formation, Operation and Reporting

Which of these is an advantage of a partnership over a sole proprietorship?

If accounts receivable are contributed when a partnership is established its fair value is recorded as the:

When preparing the closing entries for a partnership at the end of the accounting period which of these statements is true? Assume that capital account balances are not fixed.

Fatima and Jaddon have capital balances of $50 000 and $80 000, respectively and use the variable capital balances method. If their profit/loss sharing ratios are Fatima 40% and Jaddon 60%, calculate Fatima's capital balance after the net loss of $60 000 is distributed.

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

The characteristic of a partnership whereby each partner is liable for partnership debts to the full extent of his or her private assets is known as:

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

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

Partner's drawings are:

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

How is the allocation of partnership profits affected by drawings?

If the variable capital balances method (method 1) is used, the profit or loss and partner's drawings are closed to the:

Which of these is not a feature of the fixed capital balances method (method 2) of accounting for partnership equity?

Accounting for a partnership is similar to accounting for a sole trader, except that:

Which statement concerning partnerships is true?

Mutual agency means:

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

Accounting for Manufacturing

Cost Accounting Systems

Cash Management and Control

Cost-Volume-Profit Analysis for Decision Making

Budgeting for Planning and Control

Performance Evaluation for Managers

Differential Analysis, Profitability Analysis and Capital Budgeting

Companies: Formation and Operations

Regulation and the Conceptual Framework

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

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