Deck 3: Partnerships

Question 1

Mutual agency means each partner can bind or commit the partnership to any contract within the scope of the partnership's business.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

In the absence of a partnership agreement,the law says that income of a partnership will be shared equally by the partners.

Answer 3

True

Question 4

Partners can transfer both assets and liabilities to a partnership.

Question 5

The partnership agreement gives Yenny 60% and Queyen 40% of partnership incomes or losses.The partnership had a net loss of $32,000.Yenny's share of the loss was $16,200.Queyen's share was $15,800.

Question 6

Assets invested by a partner into a partnership remain the property of the individual partner.

Question 7

If the partners agree on a formula to share income and say nothing about losses,then the losses are shared equally.

Question 8

Partners' withdrawals are credited to their withdrawals accounts.

Question 9

In a limited partnership the general partner has unlimited liability.

Question 10

When a partner leaves a partnership,the partnership ends,but the business can still continue to operate.

Question 11

In order to buy into an existing partnership,the new partner must contribute cash.

Question 12

The withdrawal accounts of each partner are closed to retained earnings.

Question 13

If partners devote their time and services to their partnership,their salaries are expenses on the income statement.

Question 14

The statement of changes in equity shows the beginning balance in retained earnings,plus investments,less partners' withdrawals,the income or loss,and the ending balance in retained earnings.

Question 15

Salary and interest allowances are reported as expenses on a partnership income statement.

Question 16

In closing the partnership accounts at the end of a period,the partners' capital accounts are credited for their share of the net loss or debited for their share of the profit.

Question 17

A partnership has unlimited life.

Question 18

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

Question 19

If there is no partnership agreement,the law requires that profits or losses are divided among partners in the ratio of their capital investments.

Question 20

The equity section of the balance sheet of a partnership usually shows the individual capital account balance of each partner.

Question 21

Puff and Smoke agreed to share profits and losses in their partnership on a 7:3 basis,respectively,after a salary allowance of $25,000 is allocated to Puff.Earnings for the period total $115,000.What will be the total amount credited to Puff's Capital account when the Income Summary account is closed?

A)$63,000
B)$88,000
C)$90,000
D)$52,000
E)$25,000

Question 22

If a partner is unable to cover a deficiency and the other partners absorb the deficiency,then that partner is thus relieved of all liability.

Question 23

William and Smith formed a partnership with Scott who contributed $100,000,William who contributed $30,000,and Smith who contributed $70,000.Their partnership agreement called for the earnings division to be based on the ratio of capital investments.If the partnership had a profit of $475,000 for its first year of operation,how much would be credited to Smith's capital account?

A)$166,250
B)$70,000
C)$130,000
D)$345,000
E)$475,000

Question 24

When a partner leaves a partnership,the withdrawing partner is entitled to a bonus if the recorded equity is overstated.

Question 25

Lauren and Jenna formed a partnership with capital contributions with a fair value of $145,000 and $125,000,respectively.Their partnership agreement calls for Lauren to receive a $10,000 annual salary allowance.Also,each partner is to receive a share of earnings equal to a 5% return on capital investments.The remaining income or loss is to be divided equally.If the profit for the year is $148,000,then Lauren and Jenna's respective shares are

A)$79,500; $68,500
B)$74,000; $74,000
C)$78,000; $70,000
D)$145,000; $3,000
E)$80,000; $68,000

Question 26

When a partnership is liquidated,the business ends.

Question 27

When the current market value of a partnership is greater than the recorded amounts of equity,the partners usually require the new partner to pay a bonus for joining.

Question 28

If at the time of partnership liquidation,Claire has a $7,000 capital deficiency and pays the partnership $7,000 to cover the deficiency,then Claire is entitled to share in the final distribution of cash.

Question 29

A capital deficiency exists when all partners have a credit balance in their capital accounts.

Question 30

A capital deficiency can arise from liquidation losses,excessive withdrawals,or recurring losses in prior periods.

Question 31

The withdrawals account of each partner is

A)Credited when closed to his/her capital account
B)Debited when closed to his/her capital account
C)A permanent account and not closed
D)Credited with his/her share of profit
E)Debited with his/her share of losses

Question 32

A capital deficiency means that

A)The partnership has a loss.
B)The partnership has more liabilities than assets.
C)At least one partner has a debit balance in his/her capital account.
D)At least one partner has a credit balance in his/her capital account.
E)The partnership has been sold at a loss.

Question 33

The TJR Partnership recorded the following journal entry: $\begin{array}{|l|r|r|}\hline \text { Cash } & 20,000 \\\hline \text { B. Tara, Capital } & 2,000 \\\hline \text { R. Jillian, Capital } & 2,000 \\\hline\text { S. Rose, Capital }&&24,000\\\hline\end{array}$ The transaction reflects

A)Withdrawal of $2,000 each by Tanner and Jackson
B)Withdrawal of a partner who pays a $2,000 bonus to each of the other partners
C)Addition of a partner who pays a bonus to each of the other partners
D)Additional investment into the partnership by Tara and Jillian
E)Acceptance of a new partner who invests $20,000 and receives a $4,000 bonus

Question 34

Rachael and Olivia are business partners in RO Dance.Their partnership agreement states that the partners will share income in a 3:2 ratio (Rachael; Olivia).For the year ended December 31,2021,the partnership earned $120,000.During 2021,Rachael withdrew $20,000 cash from the business and Olivial withdrew $10,000 cash.How much income would be allocated to Olivia?

A)$38,000
B)$52,000
C)$50,000
D)$80,000
E)$40,000

Question 35

When a partner leaves a partnership,the partnership ends.

Question 36

Mya and Matt are forming a partnership.Mya is investing a building that has a fair market value of $170,000.However,the building is subject to a $35,000 mortgage.Matt is investing $30,000 cash.The amount to be credited to Mya' capital account is

A)$170,000
B)$35,000
C)$135,000
D)$30,000
E)$200,000

Question 37

Partnership accounting

A)Uses a capital account for each partner
B)Uses a withdrawals account for each partner
C)Allocates profit according to the partnership agreement
D)Allocates losses according to the partnership agreement
E)All of these

Question 38

Majeau and Horcica are forming a partnership.Majeau will invest equipment that currently is being used by another business owned by Majeau.The equipment has a fair market value of $45,000.Also,the partnership will assume responsibility for a $10,000 note secured the equipment.Horcica will invest $25,000 cash.On the books of the partnership,the amount to be recorded as a credit to Majeau's capital account is

A)$35,000
B)$55,000
C)$30,000
D)$25,000
E)$10,000

Question 39

Moreau invested $18,000 and Fereday invested $32,000 in a partnership.They agreed to share incomes and losses by allowing a $9,000 per year salary allowance to Moreau and a $12,000 per year salary allowance to Fereday,plus interest on the partners' investments at 8%,with the balance to be shared equally.Under this agreement,the shares of the partners with a $80,000 profit are

A)$40,000 to Moreau; $40,000 to Fereday
B)$18,000 to Moreau; $62,000 to Fereday
C)$37,940 to Moreau; $42,060 to Fereday
D)$39,940 to Moreau; $40,560 to Fereday
E)$38,500 to Moreau; $41,500 to Fereday

Question 40

The fact that partnership assets are owned jointly by all partners is called

A)Mutual agency
B)Unlimited liability
C)Co-ownership of property
D)Limited partnership
E)Sole proprietorship

Question 41

Disadvantages of a partnership include

A)Limited life
B)Mutual agency
C)Unlimited liability
D)Co-ownership of property
E)All of these

Question 42

A general partner in a limited partnership

A)Has limited liability for partnership debts
B)Is responsible for management duties in the business
C)Is liable for partnership liabilities only to the extent of the partner's capital investment
D)Is protected from any malpractice or negligence claims resulting from the acts of another partner
E)None of these

Question 43

Which of the following is true about a partnership?

A)The old partnership ends only upon the withdrawal of a partner.
B)The old partnership ends upon the acceptance of a new partner.
C)If a new partner is admitted to the partnership,the old partnership must liquidate.
D)Partnerships have an unlimited life.
E)Only one owner is allowed in a Partnership.

Question 44

A partnership agreement is

A)The legal relationship among the partners whereby each partner is an agent of the partnership and is able to bind the partnership to contracts within the apparent scope of the partnership's business
B)The agreement between partners that sets forth the terms under which the affairs of a partnership will be conducted
C)The legal relationship among general partners of a partnership that makes each general partner responsible for paying all the debts of the partnership if the other partners are unable to pay their shares
D)The agreement that protects all the partners of a partnership from unlimited liability for the partnership debts
E)An unincorporated association of two or more persons to carry on a business for profit as co-owners

Question 45

When a new partner is added to a partnership

A)The partnership ends.
B)The underlying business ends.
C)The underlying business continues.
D)The partnership continues.
E)The partnership ends,but the underlying business continues.

Question 46

When a partner is unable to pay a capital deficiency

A)The partner must take out a loan to cover the deficiency.
B)The deficiency is absorbed by the remaining partners.
C)The partnership ends.
D)The deficient partner has a personal liability to the other partners.
E)The deficiency is absorbed by the remaining partners and the deficient partner has a personal liability to the other partners.

Question 47

When a partnership is liquidated

A)The noncash assets are converted to cash.
B)Any gain or loss on liquidation is allocated to the partners' capital accounts.
C)The liabilities are paid.
D)The remaining cash is distributed to the partners.
E)All of these answers are correct.

Question 48

Discuss the characteristics of partnerships and similar organizations.

Question 49

A partnership designed to protect innocent partners from malpractice or negligence claims resulting from acts of another partner is a

A)Partnership
B)Limited partnership
C)Limited liability partnership
D)General partnership
E)Limited liability company

Question 50

An unincorporated association of two or more persons to carry on a business for profit as co-owners is called a

A)Partnership
B)Proprietorship
C)Partnership contract
D)Mutual agency
E)Divided authority

Question 51

Which of the following statements is true?

A)Partners are employees of the partnership.
B)Salaries to partners are expenses on the income statement.
C)Salary allowances should reflect the relative value of services provided by partners.
D)Salary allowances are expenses.
E)Interest allowances are expenses.

Question 52

Unlimited liability of partners is

A)The agreement between partners that sets forth the terms under which the affairs of the partnership will be conducted
B)In the absence of a contrary agreement,the legal responsibility of partners in a partnership to share all losses equally
C)The legal relationship between partners in which all the partners must share liability for the partnership debts,but only up to the amount of their capital accounts
D)The legal relationship among the partners whereby each partner is an agent of the partnership and is able to bind the partnership to contracts within the apparent scope of the partnership's business
E)The legal relationship among general partners that makes each of them responsible for paying all the debts of the partnership if the other partners are unable to pay their shares

Question 53

Explain the type of information needed to prepare journal entries to record the formation of a partnership.

Question 54

A bonus may be paid

A)By a new partner when the current fair value of a partnership is greater than the recorded amounts of equity
B)To a partner who provides services in excess of the salary allowance
C)To an existing partner with exceptional talents
D)By a new partner when the current fair value of a partnership is less than the recorded amounts of equity
E)All of these

Question 55

A partner can withdraw from a partnership by

A)Selling his/her interest to another person who pays for it in cash
B)Selling his/her interest to another person who pays for it with non-cash assets
C)Receiving cash or other assets of the partnership equal to the amount of his/her capital account
D)Receiving cash or other assets of the partnership greater than the amount of his/her capital account
E)All of these

Question 56

Partnership accounting

A)Is the same as accounting for a sole proprietorship
B)Is the same as accounting for a corporation
C)Is the same as accounting for a sole proprietorship,except that separate capital and withdrawal accounts are kept for each partner
D)Is the same as accounting for a not-for profit organization
E)None of these

Question 57

If a partnership contract provides for interest at 10% annually on each partner's investment,the interest

A)Is ignored when earnings are not sufficient to pay interest
B)Provides for the sharing of a portion of the partnership earnings in the capital ratio
C)Is an expense of the business
D)Must be paid in cash
E)Legally becomes a liability of the partnership

Question 58

Partners' withdrawals of assets are

A)Credited to their withdrawals accounts
B)Debited to their withdrawals accounts
C)Credited to their capital accounts
D)Debited to their capital accounts
E)Debited to retained earnings

Question 59

In the absence of a partnership agreement,the law says income/loss sharing should be based on

A)A fractional basis
B)The ratio of capital investments
C)Salary allowances
D)Equal shares
E)Interest allowances

Question 60

The legal relationship among the partners whereby each partner is an agent of the partnership and is able to bind the partnership to contracts within the apparent scope of the partnership's business is called

A)Unlimited liability
B)A partnership contract
C)Mutual agency
D)Preemptive right
E)Voluntary association

Question 61

Cornish and Duffee form a partnership by investing $120,000 and $130,000 respectively.Their partnership agreement stipulates that Cornish will receive an annual salary allowance of $12,000,and both partners will receive an interest allowance of 5% on their capital investment.Any profit remaining is to be allocated 45% to Cornish,and 55% to Duffee.Profit for their first year of operations is $80,000.Prepare the entry to close Income Summary.

Question 62

Matrix and Bentley invested $40,000 and $50,000,respectively,in a partnership they began one year ago.Assuming the partnership's profit was $140,000 for this year; calculate the share of the profit each partner should receive under the following assumptions.(1)The partnership agreement specifies a salary allowance of $25,000 to Matrix and $30,000 to Bentley,and the balance shared equally.(2)The partnership agreement specifies a salary allowance of $25,000 to Matrix and $30,000 to Bentley,10% interest on their investments,and the balance shared equally.

Question 63

Graeme,Bella and Anne are partners with capital balances of $90,000,$70,000,and $50,000,respectively.The partners agreed to share profits and losses as follows: Salary allowances of $7,000 to Graeme,$8,000 to Bella and $14,000 to Anne.Interest allowances of 10% on beginning-of-year capital balances Balance to be divided equally.If profit for the year is $220,000,calculate each partner's share and prepare the appropriate journal entry to close the Income Summary to the capital accounts.

Question 64

The partners of the Blue Tooth Partnership agree to liquidate.After all liabilities of $100,000 are paid,the partnership's cash balance is $110,000,and the capital account balances are: Peters,$60,000; Winslow,$40,000; and Wong,$10,000.Prepare the journal entry to distribute the ending cash.

Question 65

Chante and Olivia decide to accept Sherwood into the partnership.Sherwood will contribute $25,000 in cash,which will also be the amount to be credited to his capital account.Prepare the journal entry to record the transaction.

Question 66

Craig and Smith formed a partnership on December 31,2020.Craig contributed $60,000 cash.Justin's investment consisted of cash,$8,000; inventory,$24,000; and supplies,$8,000-all at fair market values.Profit for 2020 and 2021 was $75,000 and $85,000,respectively.Calculate the allocation of profit for 2020 and 2021,assuming profits are divided as follows: (A)The partners have no agreement.(B)Based on a 1:3 ratio.(C)Based on the ratio of the partners' original investments.(D)Interest allowances of 10% on their original investments,salary allowances to Craig of $14,000 and Simpson of $11,000,and the remainder to be divided equally.

Question 67

Reed is anxious to leave the RD Partnership.At this time her capital account is $52,000.The remaining partners,Tool and June,agree to pay Reed $50,000 in cash.Prepare the journal entry to record the withdrawal.Assume the partners have no agreement for sharing profits and losses.

Question 68

Mung and Long allow Kang to join their partnership for $50,000 cash.The recorded value of the equity being purchased is $40,000.Prepare the journal entry to record the admission of Kang to the partnership.Assume the partners have no agreement for sharing profits and losses.

Question 69

Phillip and Herbert formed a partnership.Phillip contributed $40,000 cash and accounts receivable worth $12,000.Herbert's investment included cash,$3,000; inventory,$10,000; and supplies,$4,000.(All values are current fair market values).Prepare the journal entry to record the formation of the partnership.

Question 70

Schneider withdraws from the SST Partnership.At this time her capital account is $45,000.The remaining partners agree to pay her $45,000 for her interest.Prepare the journal entry to record the withdrawal.

Question 71

With the consent of the other partners,Frank decides to sell one half of his $50,000 interest in the DDB Partnership to Bob privately for $22,500.Prepare the journal entry to record the transaction.

Question 72

Slosky invested $60,000 and Karhut invested $80,000 in a partnership and agreed to share income and losses by allowing a $6,000 annual salary allowance to Slosky and an $1,000 annual salary allowance to Karhut.As well,each partner is to receive a share of profit equal to a 10% return on capital investments,and the balance is to be divided 1/3 to Slosky and 2/3 to Karhut.Under this agreement,what are the shares of the partners if the partnership income is $85,000?

Question 73

Cook and Parker formed a partnership with capital contributions of $50,000 and $60,000 respectively.Their partnership agreement called for Cook to receive a $9,000 annual salary allowance,and each partner to receive a share of profit equal to a 5% return on capital investments.The remaining income or loss is to be divided 50% to Cook and 50% to Parker.If the profit for the year is $105,000,what are Cook and Parson's respective shares? Prepare the required closing entry.

Question 74

On August 1,Nola and Verna decide to form an engineering and design partnership.Of the following items shown below,Nola invested the assets and the partnership assumed the liabilities:

Question 75

Explain the steps involved in the liquidation of a partnership.

Question 76

Discuss the accounting issues involved in the admission or withdrawal of a partner from a partnership.

Question 77

Armstrong plans to leave the JT Partnership.At this time her capital account is $48,000.The remaining partners,Tanner and Jackson,agree to pay Armstrong $58,000.Prepare the journal entry to record the withdrawal.Assume the partners have no agreement for sharing profits and losses.

Question 78

Rachel,Jenna and Lauren are partners with capital balances of $80,000,$10,000,and $10,000,respectively.Profit for the year is $150,000.Prepare the necessary journal entries to close Income Summary to the capital accounts if:(a)The partners agree to divide income based on their beginning-of-year capital balances.(b)The partners agree to divide income based on the ratio of 5:3:2,respectively.(c)The partnership agreement is silent as to division of income.

Question 79

Yee,Young,and Kong form a partnership.Yee contributes $50,000 cash,Young contributes $10,000 in cash and equipment with and fair value of $32,000 and Kong contributes cash of $15,000.Prepare the journal entry to record the formation of the partnership.

Question 80

Discuss the options for the allocation of income and loss among partners.