Deck 11: Partnerships

Question 1

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

Answer 1

True

Question 2

Partners can transfer both assets and liabilities to a partnership.

Answer 2

True

Question 3

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

Answer 3

True

Question 4

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 5

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

Question 6

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 7

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

Question 8

Partners' withdrawals are credited to their withdrawals accounts.

Question 9

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

Question 10

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

Question 11

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

Question 12

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 13

A partnership has unlimited life.

Question 14

The partnership agreement gives Tsang 60% and Breck 40% of partnership incomes or losses. The partnership had a net loss of $27,000. Tsang's share of the loss was $16,200. Breck's share was $10,800.

Question 15

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

Question 16

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

Question 17

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

Question 18

In a limited partnership the general partner has unlimited liability.

Question 19

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

Question 20

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

Question 21

Partnership accounting:

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

Question 22

The withdrawals account of each partner is:

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

Question 23

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 24

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

Question 25

A capital deficiency means that:

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

Question 26

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

Question 27

Chen and Wright are forming a partnership. Chen will invest a building that currently is being used by another business owned by Chen. The building has a fair market value of$65,000. Also, the partnership will assume responsibility for a $15,000 note secured by a mortgage on the building. Wright will invest $20,000 cash. On the books of thepartnership, the amount to be recorded for the building and credit to Chen's capital account are:

A) $65,000 and $65,000.
B) $50,000 and $20,000.
C) $20,000 and $65,000.
D) $50,000 and $40,000.
E) $65,000 and $50,000.

Question 28

If at the time of partnership liquidation, Breck has a $5,000 capital deficiency and paysthe partnership $5,000 to cover the deficiency, then Breck is entitled to share in the final distribution of cash.

Question 29

The TJR Partnership recorded the following journal entry:

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

Question 30

When a partner leaves a partnership, the partnership ends.

Question 31

Jack and Jill are business partners in JJ Sports. Their partnership agreement states thatthe partners will share income in a 3:2 ratio Jack:Jill). For the year ended December 31, 2016, the partnership earned $200,000.During 2016, Jack withdrew $40,000 cash from the business and Jill withdrew $30,000 cash. How much income would be allocated to Jill?

A) $30,000
B) $80,000
C) $40,000
D) $50,000
E) $110,000

Question 32

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 theperiod 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) $52,000
C) $90,000
D) $88,000
E) $25,000

Question 33

Nguyen invested $8,000 and Hansen invested $12,000 in a partnership. They agreed to share incomes and losses by allowing a $9,000 per year salary allowance to Nguyen and a $12,000 per year salary allowance to Hansen, plus interest on the partners'investments at 10%, with the balance to be shared equally. Under this agreement, the shares of the partners with a $51,000 profit are:

A) $26,000 to Nguyen; $25,000 to Hansen.
B) $14,500 to Nguyen; $35,500 to Hansen.
C) $9,000 to Nguyen; $12,000 to Hansen.
D) $10,500 to Nguyen; $10,500 to Hansen.
E) $23,800 to Nguyen; $27,200 to Hansen.

Question 34

Collins and Farina are forming a partnership. Collins is investing a building that has a fair market value of $70,000. However, the building is subject to a $36,000 mortgage. Farina is investing $20,000 cash. The amount to be credited to Collins' capital account is:

A) $70,000.
B) $56,000.
C) $44,000.
D) $34,000.
E) $60,000.

Question 35

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

Question 36

When a partnership is liquidated, the business ends.

Question 37

Alban and Thompson formed a partnership with capital contributions with a fair value of $25,000 and $45,000, respectively. Their partnership agreement calls for Alban toreceive a $12,000 annual salary allowance. Also, each partner is to receive a share of earnings equal to a 10% return on capital investments. The remaining income or loss is to be divided equally. If the profit for the year is $48,000, then Alban and Thompson's respective shares are:

A) $14,000; $14,000.
B) $12,000; $16,000.
C) $20,000; $8,000.
D) $29,000; $19,000.
E) $16,500; $11,500.

Question 38

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

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

Question 39

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 40

Rice, Hepburn, and DiMarco formed a partnership with Rice contributing $50,000, Hepburn contributing $30,000, and DiMarco contributing $20,000. Their partnership agreement called for the earnings division to be based on the ratio of capitalinvestments. If the partnership had a profit of $75,000 for its first year of operation, how much would be credited to DiMarco's capital account?

A) $10,000.
B) $30,000.
C) $75,000.
D) $15,000.
E) $20,000.

Question 41

Partnership accounting:

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

Question 42

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

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

Question 43

A partnership agreement is:

A) 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.
B) An unincorporated association of two or more persons to carry on a business for profit as co-owners.
C) The agreement between partners that sets forth the terms under which the affairs of a partnership will be conducted.
D) The agreement that protects all the partners of a partnership from unlimited liability for the partnership debts.
E) 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.

Question 44

Unlimited liability of partners 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 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.
C) The agreement between partners that sets forth the terms under which the affairs of the partnership will be conducted.
D) In the absence of a contrary agreement, the legal responsibility of partners in a partnership to share all losses equally.
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 45

Which of the following is true about a partnership?

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

Question 46

When a partnership is liquidated:

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

Question 47

Partners' withdrawals of assets are:

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

Question 48

When a new partner is added to a partnership:

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

Question 49

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

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

Question 50

Disadvantages of a partnership include:

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

Question 51

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

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

Question 52

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

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

Question 53

A bonus may be paid:

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

Question 54

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

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

Question 55

A partner can withdraw from a partnership by:

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

Question 56

A general partner in a limited partnership

A) is responsible for management duties in the business.
B) is liable for partnership liabilities only to the extent of the partner's capital investment.
C) is protected from any malpractice or negligence claims resulting from the acts of another partner.
D) has limited liability for partnership debts.

Question 57

When a partner is unable to pay a capital deficiency:

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