Deck 12: Accounting for Partnerships

Question 1

A major advantage of the partnership form of organization is that the partners have unlimited liability.

Answer 1

False

Question 2

An interest allowance in sharing partnership net income (or net loss) is related to the amount of partners' invested capital during the period.

Answer 2

True

Question 3

Unless stated otherwise in the partnership contract profits and losses are shared among the partners in the ratio of their capital equity balances.

Answer 3

False

Question 4

Unless the partnership agreement specifically indicates an income ratio partnership net income or loss is not allocated to the partners.

Question 5

Partnership income or loss need not be closed to partners' capital accounts each period because of the unlimited life characteristic of partnerships.

Question 6

If a partnership has a loss for the period the closing entry to transfer the loss to the partners will require a credit to the Income Summary account.

Question 7

The financial statements of a partnership are similar to those of a proprietorship.

Question 8

The personal assets liabilities and personal transactions of partners are excluded from the accounting records of the partnership.

Question 9

If a partner's investment in a partnership consists of Accounts Receivable of $35000 and an Allowance for Doubtful Accounts of $7000 it would not be appropriate for the partnership to record the Allowance for Doubtful Accounts.

Question 10

The partnership agreement between partners must be in writing.

Question 11

Salary allowances to partners are a major expense on most partnership income statements.

Question 12

The partners' drawing accounts are closed each period into the Income Summary account.

Question 13

If salary allowances and interest on capital are stipulated in the partnership profit and loss sharing agreement they are implemented only if income is sufficient to cover the amounts required by these features.

Question 14

Two proprietorships cannot combine and form a partnership.

Question 15

If a partner's investment in a partnership consists of equipment that has accumulated depreciation of $8000 it would not be appropriate for the partnership to record the accumulated depreciation.

Question 16

If a partner invests noncash assets in a partnership they should be recorded by the partnership at their fair value.

Question 17

L. Hampton invests the following assets in a new partnership: $30000 in cash and equipment that cost $70000 but has a book value of $34000 and fair value of $40000. Hampton Capital will be credited for $64000.

Question 18

The act of any partner is binding on all other partners if the act appears to be appropriate for the partnership.

Question 19

Partnership creditors may have a claim on the personal assets of any of the partners if the partnership assets are not sufficient to settle claims.

Question 20

The income earned by a partnership will always be greater than the income earned by a proprietorship because in a partnership there is more than one owner contributing to the success of the business.

Question 21

The admission of a new partner results in the legal dissolution of the existing partnership and the beginning of a new partnership.

Question 22

A general partner in a partnership

A) has unlimited liability for all partnership debts.
B) is always the general manager of the firm.
C) is the partner who lacks a specialization.
D) is liable for partnership liabilities only to the extent of that partner's capital equity.

Question 23

A bonus to the remaining partners results when a retiring partner receives partnership assets which are less than his or her capital balance on the date of withdrawal.

Question 24

Partnership income is shared in proportion to each partner's capital equity interest unless the partnership contract specifically indicates the manner in which net income or net loss is to be divided.

Question 25

A detailed listing of all the assets invested by a partner in a partnership appears on the Partners' Capital Statement.

Question 26

The distribution of cash to partners in a partnership liquidation is always made based on the partners' income sharing ratio.

Question 27

Total partners' equity of a partnership is equal to the sum of all partners' capital account balances.

Question 28

If a new partner invests in a partnership at book value and acquires a 1/4 interest in total partnership capital it indicates that a bonus was paid to the original partners.

Question 29

A partnership

A) has only one owner.
B) pays taxes on partnership income.
C) must file an information tax return.
D) is not an accounting entity for financial reporting purposes.

Question 30

A bonus to old partners results when the new partner's capital credit on the date of admittance is greater than his or her investment in the firm.

Question 31

The function of the Partners' Capital Statement is to explain the changes in partners' capital account balances during a period.

Question 32

Each partner's initial investment in a partnership should be recorded at book value.

Question 33

In an admission of a partner by investment of assets the total net assets and total capital of the partnership do not change.

Question 34

A partnership is an association of no more than two persons to carry on as co-owners of a business for profit.

Question 35

The liquidation of a partnership means that a new partner has been admitted to the partnership.

Question 36

Once assets have been invested in the partnership they are owned jointly by all partners.

Question 37

In a liquidation the final distribution of cash to partners should be on the basis of their income ratios.

Question 38

A hybrid form of business organization with certain features like a corporation is a(n)

A) limited liability partnership.
B) limited liability company.
C) "S" corporation.
D) sub-chapter "S" corporation.

Question 39

The withdrawal of a partner legally dissolves the partnership.

Question 40

If a new partner is admitted into a partnership by investment the total assets and total capital will change.

Question 41

Which of the following would not be recorded in the entry for the formation of a partnership?

A) Accumulated depreciation
B) Allowance for doubtful accounts
C) Accounts receivable
D) All of these would be recorded.

Question 42

Which of the following statements is true regarding the form of a legally binding partnership contract?

A) The partnership contract must be in writing.
B) The partnership contract may be based on a handshake.
C) The partnership contract may be implied.
D) The partnership contract cannot be oral.

Question 43

Which of the following is not a principal characteristic of the partnership form of business organization?

A) Mutual agency
B) Association of individuals
C) Limited liability
D) Limited life

Question 44

The partner in a limited partnership that has unlimited liability is referred to as the

A) lead partner.
B) head partner.
C) general partner.
D) unlimited partner.

Question 45

The Salinas-Milliken partnership is terminated when creditor claims exceed partnership assets by $80000. Salinas is a millionaire and Milliken has no personal assets. Milliken's partnership interest is 75% and Salinas's is 25%. Creditors

A) must collect their claims equally from Milliken and Salinas.
B) may collect the entire $80000 from Salinas.
C) must collect their claims 75% from Milliken and 25% from Salinas.
D) may not require Salinas to use his personal assets to satisfy the $80000 in claims.

Question 46

Limited partnerships

A) must have at least one general partner.
B) guarantee that a partner will receive a return.
C) guarantee that a partner will get back his original investment.
D) are limited to only three partners.

Question 47

The partnership form of business is

A) restricted to law and medical practices.
B) restricted to firms having fewer than 10 partners.
C) not restricted to any particular type of business.
D) most often used in relatively large companies.

Question 48

The individual assets invested by a partner in a partnership

A) revert back to that partner if the partnership liquidates.
B) determine that partner's share of net income or loss for the year.
C) are jointly owned by all partners.
D) determine the scope of authority of that partner.

Question 49

The basis for dividing partnership net income or net loss is referred to as any of the following except the

A) income ratio.
B) income and loss ratio.
C) profit and loss ratio.
D) income sharing ratio.

Question 50

Which one of the following would not be considered a disadvantage of the partnership form of organization?

A) Limited life
B) Unlimited liability
C) Mutual agency
D) Ease of formation

Question 51

Which of the following statements about a partnership is correct?

A) The personal assets of a partner are included in the partnership accounting records.
B) A partnership is not required to file an information tax return.
C) Each partner's share of income is taxable to the partnership.
D) A partnership represents an accounting entity for financial reporting purposes.

Question 52

Which of the following statements is incorrect regarding partnership agreements?

A) It may be referred to as the "articles of co-partnership."
B) Oral agreements are preferable to written articles.
C) It should specify the different relationships that are to exist among the partners.
D) It should state procedures for submitting disputes to arbitration.

Question 53

A partnership

A) is dissolved only by the withdrawal of a partner.
B) is dissolved upon the acceptance of a new partner.
C) dissolution means the business must liquidate.
D) has unlimited life.

Question 54

The partnership agreement should include each of the following except the

A) date of the partnership inception.
B) principal location of the firm.
C) surviving family members in the event of a partner's death.
D) Each of these should be included.

Question 55

Nate is investing in a partnership with Deidre. Nate contributes as part of his initial investment Accounts Receivable of $60000; an Allowance for Doubtful Accounts of $9000; and $6000 cash. The entry that the partnership makes to record Nate's initial contribution includes a

A) credit to Nate Capital for $66000.
B) debit to Accounts Receivable for $51000.
C) credit to Nate Capital for $57000.
D) debit to Allowance for Doubtful Accounts for $9000.

Question 56

In a partnership mutual agency means

A) each partner acts on his own behalf when engaging in partnership business.
B) the act of any partner is binding on all other partners only if partners act within their scope of authority.
C) an act by a partner is judged as binding on other partners depending on whether the act appears to be appropriate for the partnership.
D) that partners must pay taxes on a mutual or combined basis.

Question 57

Which of the following is not an advantage of the partnership form of business?

A) Mutual agency
B) Ease of formation
C) Ease of decision making
D) Freedom from governmental regulations and restrictions

Question 58

Which of the following statements about partnerships is incorrect?

A) Partnership assets are co-owned by partners.
B) If a partnership is terminated the assets do not legally revert to the original contributor.
C) If the partnership agreement does not specify the manner in which net income is to be shared it is distributed according to capital contributions.
D) Each partner has a claim on assets equal to the balance in the partner's capital account.

Question 59

Bagley invests personally owned equipment which originally cost $220000 and has accumulated depreciation of $60000 in the Bagley and Eggers partnership. Both partners agree that the fair value of the equipment was $120000. The entry made by the partnership to record Bagley's investment should be a.
$\begin{array}{llr} \text { Equipment} &220,000\\ \text {Accumulated Depreciation-Equipment } &&60,000\\ \text { Bagley, Capital} &&160,000\end{array}$

b.
$\begin{array}{llr} \text {Equipment } &160,000\\ \text { Bagley, Capital} &&160,000\\\end{array}$

c.
$\begin{array}{llr} \text {Equipment } &120,000\\ \text { Loss on Purchase of Equipment } &40,000\\ \text { Accumulated Depreciation-Equipment} &60,000\\ \text { Bagley, Capital } &&220,000\end{array}$

d.
$\begin{array}{llr} \text { Equipment } &120,000\\ \text {Bagley, Capital } &&120,000\\\end{array}$

Question 60

The largest companies in the United States are primarily organized as

A) limited partnerships.
B) partnerships.
C) corporations.
D) proprietorships.

Question 61

A partner's share of net income is recognized in the accounts through

A) adjusting entries.
B) closing entries.
C) correcting entries.
D) accrual entries.

Question 62

Partners Gary and Elaine have agreed to share profits and losses in an 80:20 ratio respectively after Gary is allowed a salary allowance of $30000 and Elaine is allowed a salary allowance of $15000. If the partnership had net income of $30000 for 2017 Elaine's share of the income would be

A) $15000.
B) $12000.
C) $18000.
D) $3000.

Question 63

Partners Cantor and Dickens have capital balances in a partnership of $160000 and $240000 respectively. They agree to share profits and losses as follows: $\begin{array}{lrr}& \underline{\text {Cantor}}& \underline{\text {Dickens}}\\\text { As salaries } & \$ 40,000 & \$ 48,000 \\\text { As interest on capital at the beginning of the year } & 10 \% & 10 \% \\\text { Remaining profits or losses } & 50 \% & 50 \%\end{array}$

If net loss for the year was $8000 what will be the distribution to Dickens?

A) $48000 income
B) $4000 income
C) $4000 loss
D) $8000 loss

Question 64

Partners Eli and Alex have agreed to share profits and losses in an 80:20 ratio respectively after Eli is allowed a salary allowance of $70000 and Alex is allowed a salary allowance of $35000. If the partnership had net income of $70000 for 2017 Alex's share of the income would be

A) $35000.
B) $28000.
C) $42000.
D) $7000.

Question 65

Partners Cantor and Dickens have capital balances in a partnership of $160000 and $240000 respectively. They agree to share profits and losses as follows: $\begin{array}{lrr}& \underline{\text {Cantor}}& \underline{\text {Dickens}}\\\text { As salaries } & \$ 40,000 & \$ 48,000 \\\text { As interest on capital at the beginning of the year } & 10 \% & 10 \% \\\text { Remaining profits or losses } & 50 \% & 50 \%\end{array}$
If income for the year was $200000 what will be the distribution of income to Dickens?

A) $92000
B) $108000
C) $80000
D) $40000

Question 66

Brian and Sandy are forming a partnership. Brian will invest a truck with a book value of $10000 and a fair value of $14000. Sandy will invest a building with a book value of $30000 and a fair value of $42000 with a mortgage of $15000. What amount should be recorded in Brian's capital account?

A) $30000
B) $27000
C) $42000
D) $14000

Question 67

Brian and Sandy are forming a partnership. Brian will invest a truck with a book value of $10000 and a fair value of $14000. Sandy will invest a building with a book value of $30000 and a fair value of $42000 with a mortgage of $15000. What amount should be recorded in Sandy's capital account?

A) $30000
B) $27000
C) $42000
D) $14000

Question 68

Todd is investing in a partnership with Joseph. Todd contributes equipment that originally cost $42000 has a book value of $20000 and a fair value of $26000. The entry that the partnership makes to record Todd's initial contribution includes a

A) debit to Equipment for $22000.
B) debit to Equipment for $42000.
C) debit to Equipment for $26000.
D) credit to Accumulated Depreciation for $22000.

Question 69

Brian and Sandy are forming a partnership. Brian will invest a truck with a book value of $10000 and a fair value of $14000. Sandy will invest a building with a book value of $30000 and a fair value of $42000 with a mortgage of $15000. At what amount should the building be recorded?

A) $30000
B) $27000
C) $42000
D) $45000

Question 70

Julie contributes as part of her initial investment accounts receivable with an allowance for doubtful accounts. Which of the following reflects a proper treatment?

A) The balance of the accounts receivable account should be recorded on the books of the partnership at its net realizable value.
B) The allowance account may be set up on the books of the partnership because it relates to the existing accounts that are being contributed.
C) The allowance account should not be carried onto the books of the partnership.
D) The accounts receivable and allowance should not be recorded on the books of the partnership because a partner must invest cash in the business.

Question 71

A partner invests into a partnership a building with an original cost of $360000 and accumulated depreciation of $160000. This building has a $280000 fair value. As a result of the investment the partner's capital account will be credited for

A) $280000.
B) $200000.
C) $360000.
D) $480000.

Question 72

Which one of the following would not be considered an expense of a partnership in determining income for the period?

A) Expired insurance
B) Salary allowance to partners
C) Supplies used
D) Freight-out

Question 73

Brekke and Fig decide to organize a partnership. Brekke invests $30000 cash and Fig contributes $24000 cash and equipment having a book value of $12000. Choose the entry to record Fig's investment in the partnership assuming the equipment has a fair value of $18000. a.
$\begin{array}{llr} \text {Cash } &24,000\\ \text {Equipment } &12,000\\ \text { Fig, Capital } &&36,000\end{array}$

b.
$\begin{array}{llr} \text { Equipment} &12,000\\ \text { Fig, Capital } &&12,000\\\end{array}$

c.
$\begin{array}{llr} \text { Cash } &24,000\\ \text {Fig, Capital } &&24,000\\\end{array}$

d.
$\begin{array}{llr} \text { Cash } &24,000\\ \text {Equipment } &18,000\\ \text { Fig, Capital } &&42,000\end{array}$

Question 74

The partnership agreement of Alix Gise and Bosco provides for the following income ratio: (a) Alix the managing partner receives a salary allowance of $108000 (b) each partner receives 15% interest on average capital investment and (c) remaining net income or loss is divided equally. The average capital investments for the year were: Alix $600000 Gise $1200000 and Bosco $1800000. If partnership net income is $540000 the amount distributed to Alix should be

A) $90000.
B) $162000.
C) $180000.
D) $198000.

Question 75

Partners Cantor and Dickens have capital balances in a partnership of $160000 and $240000 respectively. They agree to share profits and losses as follows: $\begin{array}{lrr}& \underline{\text {Cantor}}& \underline{\text {Dickens}}\\\text { As salaries } & \$ 40,000 & \$ 48,000 \\\text { As interest on capital at the beginning of the year } & 10 \% & 10 \% \\\text { Remaining profits or losses } & 50 \% & 50 \%\end{array}$

If income for the year was $120000 what will be the distribution of income to Cantor?

A) $52000
B) $64000
C) $40000
D) $56000

Question 76

M. Abadie and S. Collier combine their individual sole proprietorships to start the Abadie - Collier partnership. M. Abadie and S. Collier invest in the partnership as follows The entries to record the investment will include a credit to:

A) Abadie Capital of $41500.
B) Collier Capital of $19100.
C) Abadie Capital of $43000.
D) Collier Capital of $25100.

Question 77

The partnership of Bher and Dhillips reports net income of $120000. The partners share equally in income and losses. The entry to record the partners' share of net income will include a

A) credit to Income Summary for $120000.
B) credit to Bher Capital for $60000.
C) debit to Dhillips Capital for $60000.
D) credit to Dhillips Drawing for $60000.

Question 78

The most appropriate basis for dividing partnership net income when the partners do not plan to take an active role in daily operations is

A) on a fixed ratio.
B) interest on capital balances and salaries to the partners.
C) on a ratio based on average capital balances.
D) salaries to the partners and the remainder on a fixed ratio.

Question 79

The Mayer and Rodin partnership agreement stipulates that profits and losses will be shared equally after salary allowances of $400000 for Mayer and $200000 for Rodin. At the beginning of the year Mayer's Capital account had a balance of $800000 while Rodin's ' Capital account had a balance of $700000. Net income for the year was $500000. The balance of Rodin's Capital account at the end of the year after closing is

A) $950000.
B) $200000.
C) $850000.
D) $900000.

Question 80

The partnership agreement of Alix Gise and Bosco provides for the following income ratio: (a) Alix the managing partner receives a salary allowance of $108000 (b) each partner receives 15% interest on average capital investment and (c) remaining net income or loss is divided equally. The average capital investments for the year were: Alix $600000 Gise $1200000 and Bosco $1800000. If partnership net income is $720000 the amount distributed to Gise should be:

A) $180000.
B) $186000.
C) $204000.
D) $240000.