Deck 12: Accounting for Partnerships

Question 1

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

Answer 1

True

Question 2

If a partner's investment in a partnership consists of equipment that has accumulated depreciation of $8,000, it would not be appropriate for the partnership to record the accumulated depreciation.

Answer 2

True

Question 3

The partnership agreement between partners must be in writing.

Answer 3

False

Question 4

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

Question 5

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

Question 6

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

Question 7

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

Question 8

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 9

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

Question 10

If a partner's investment in a partnership consists of Accounts Receivable of $25,000 and an Allowance for Doubtful Accounts of $7,000, it would not be appropriate for the partnership to record the Allowance for Doubtful Accounts.

Question 11

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

Question 12

L. Hill invests the following assets in a new partnership: $15,000 in cash, and equipment that cost $30,000 but has a book value of $17,000 and fair market value of $20,000. Hill, Capital will be credited for $32,000.

Question 13

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

Question 14

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

Question 15

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 16

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

Question 17

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 18

Two proprietorships cannot combine and form a partnership.

Question 19

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 20

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

Question 21

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 22

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 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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 30

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 31

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 32

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

Question 33

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

Question 34

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 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

The withdrawal of a partner legally dissolves the partnership.

Question 40

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 41

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 42

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 43

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 44

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 45

The Polen-James partnership is terminated when creditor claims exceed partnership assets by $40,000. James is a millionaire and Polen has no personal assets. Polen's partnership interest is 75% and James's is 25%. Creditors

A) must collect their claims equally from Polen and James.
B) may collect the entire $40,000 from James.
C) must collect their claims 75% from Polen and 25% from James.
D) may not require James to use his personal assets to satisfy the $40,000 in claims.

Question 46

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 47

Bob is investing in a partnership with Andy. Bob contributes as part of his initial investment, Accounts Receivable of $80,000; an Allowance for Doubtful Accounts of $12,000; and $8,000 cash. The entry that the partnership makes to record Bob's initial contribution includes a

A) credit to Bob, Capital for $88,000.
B) debit to Accounts Receivable for $68,000.
C) credit to Bob, Capital for $76,000.
D) debit to Allowance for Doubtful Accounts for $12,000.

Question 48

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 49

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 50

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 51

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 52

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 53

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 54

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 55

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 56

The largest companies in the United States are primarily organized as

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

Question 57

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 58

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 59

Horton invests personally owned equipment, which originally cost $110,000 and has accumulated depreciation of $30,000 in the Horton and Matile partnership. Both partners agree that the fair market value of the equipment was $60,000. The entry made by the partnership to record Horton's investment should be

Question 60

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 61

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 average capital balances.
D) salaries to the partners and the remainder on a fixed ratio.

Question 62

Sam is investing in a partnership with Jerry. Sam contributes equipment that originally cost $63,000, has a book value of $30,000, and a fair market value of $39,000. The entry that the partnership makes to record Sam's initial contribution includes a

A) debit to Equipment for $33,000.
B) debit to Equipment for $63,000.
C) debit to Equipment for $39,000.
D) credit to Accumulated Depreciation for $33,000.

Question 63

L. Trevino and B. Hogan combine their individual sole proprietorships to start the Trevino-Hogan partnership. L. Trevino and B. Hogan invest in the partnership as follows: The entries to record the investment will include a credit to:

A) Trevino, Capital of $40,500.
B) Hogan, Capital of $17,100.
C) Trevino, Capital of $42,000.
D) Hogan, Capital of $23,100.

Question 64

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 65

The partnership agreement of Nieto, Keller, and Pickert provides for the following income ratio: (a) Nieto, the managing partner, receives a salary allowance of $36,000, (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: Nieto $200,000, Keller $400,000, and Pickert $600,000. If partnership net income is $240,000, the amount distributed to Keller should be:

A) $60,000
B) $62,000
C) $68,000
D) $80,000

Question 66

Partners Acer and Barr have capital balances in a partnership of $40,000 and $60,000, respectively. They agree to share profits and losses as follows: If net loss for the year was $2,000, what will be the distribution to Barr?

A) $12,000 income
B) $1,000 income
C) $1,000 loss
D) $2,000 loss

Question 67

Partners Acer and Barr have capital balances in a partnership of $40,000 and $60,000, respectively. They agree to share profits and losses as follows: If income for the year was $30,000, what will be the distribution of income to Acer?

A) $13,000
B) $77,000
C) $10,000
D) $14,000

Question 68

A partner invests into a partnership a building with an original cost of $90,000 and accumulated depreciation of $40,000. This building has a $70,000 fair market value. As a result of the investment, the partner's capital account will be credited for

A) $70,000.
B) $50,000.
C) $90,000.
D) $120,000.

Question 69

Danny and Vicky are forming a partnership. Danny will invest a truck with a book value of $10,000 and a fair market value of $14,000. Vicky will invest a building with a book value of $30,000 and a fair market value of $42,000 with a mortgage of $15,000. What amount should be recorded in Danny's capital account?

A) $30,000
B) $27,000
C) $42,000
D) $14,000

Question 70

Partners Bob and Don have agreed to share profits and losses in an 80:20 ratio respectively, after Bob is allowed a salary allowance of $140,000 and Don is allowed a salary allowance of $70,000. If the partnership had net income of $140,000 for 2010, Don's share of the income would be

A) $70,000.
B) $56,000.
C) $84,000.
D) $14,000.

Question 71

The Raney and Kiser partnership agreement stipulates that profits and losses will be shared equally after salary allowances of $160,000 for Raney and $80,000 for Kiser. At the beginning of the year, Raney's Capital account had a balance of $320,000, while Kiser' Capital account had a balance of $280,000. Net income for the year was $200,000. The balance of Kiser' Capital account at the end of the year after closing is

A) $380,000.
B) $80,000.
C) $340,000.
D) $360,000.

Question 72

The partnership of Lane and Starr reports net income of $60,000. 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 $60,000.
B) credit to Lane, Capital for $30,000.
C) debit to Starr, Capital for $30,000.
D) credit to Starr, Drawing for $30,000.

Question 73

Amber 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 74

The partnership agreement of Nieto, Keller, and Pickert provides for the following income ratio: (a) Nieto, the managing partner, receives a salary allowance of $36,000, (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: Nieto $200,000, Keller $400,000, and Pickert $600,000. If partnership net income is $180,000, the amount distributed to Nieto should be:

A) $30,000
B) $54,000
C) $60,000
D) $66,000

Question 75

Danny and Vicky are forming a partnership. Danny will invest a truck with a book value of $10,000 and a fair market value of $14,000. Vicky will invest a building with a book value of $30,000 and a fair market value of $42,000 with a mortgage of $15,000. What amount should be recorded in Vicky's capital account?

A) $30,000
B) $27,000
C) $42,000
D) $14,000

Question 76

Partners Don and Ron have agreed to share profits and losses in an 80:20 ratio respectively, after Don is allowed a salary allowance of $80,000 and Ron is allowed a salary allowance of $40,000. If the partnership had net income of $80,000 for 2010, Ron's share of the income would be

A) $40,000
B) $32,000
C) $48,000
D) $8,000

Question 77

Danny and Vicky are forming a partnership. Danny will invest a truck with a book value of $10,000 and a fair market value of $14,000. Vicky will invest a building with a book value of $30,000 and a fair market value of $42,000 with a mortgage of $15,000. At what amount should the building be recorded?

A) $30,000
B) $27,000
C) $42,000
D) $45,000

Question 78

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 79

Partners Acer and Barr have capital balances in a partnership of $40,000 and $60,000, respectively. They agree to share profits and losses as follows: If income for the year was $50,000, what will be the distribution of income to Barr?

A) $23,000
B) $27,000
C) $20,000
D) $10,000

Question 80

Rosen and Noble decide to organize a partnership. Rosen invests $15,000 cash, and Noble contributes $12,000 cash and equipment having a book value of $6,000. Choose the entry to record Noble's investment in the partnership assuming the equipment has a fair market value of $9,000.