Deck 13: Partnerships

Question 1

Which of the following BEST describes the term mutual agency?

A)When only one partner has the authority to contractually bind the partnership
B)When each partner has the power to withdraw on the investment accounts of the others
C)When all partners of a partnership share profits equally
D)When each partner has the authority to act on behalf of the partnership

Answer 1

D

Question 2

A partnership agreement includes all of the following EXCEPT the:

A)provisions for the issue of ordinary shares.
B)name and initial investment of each partner.
C)procedures for liquidating the partnership.
D)method of sharing profits and losses.

Answer 2

A

Question 3

When a partnership makes profit and the accounts are closed, the partner capital accounts will be credited with their designated shares of the profit.

Answer 3

True

Question 4

Partnerships always share profit equally among all partners.

Question 5

A partnership has an indefinite life.

Question 6

When a partnership is formed and a partner contributes property, plant and equipment, it is recorded on the books of the partnership at its net book value-the original cost less accumulated depreciation.

Question 7

Which of the following statements is TRUE about a limited partnership?

A)The general partner takes on greater liability than the limited partners.
B)In a limited partnership, all partners are considered to be limited partners.
C)The general partner has first claim on the profit of the partnership.
D)The partners all share equally in the profit or losses of the partnership.

Question 8

When one partner withdraws from a partnership, it causes the partnership to dissolve.

Question 9

If a partnership agreement specifies a formula for the sharing of profits, such as according to each partner's investment, but is silent on how losses should be shared, then losses will be shared equally among the partners.

Question 10

Partners in accounting firms often have an upper limit to their liability.

Question 11

Generally speaking, partners in a partnership may withdraw cash or other assets from the partnership, within the parameters of the agreement.

Question 12

If the partnership agreement does NOT specifically state how profits and losses are to be distributed, then the partners will share profits and losses equally.

Question 13

Procedures for settling with a partner who withdraws from the partnership should be included in the partnership agreement.

Question 14

The profit of a partnership is not taxed directly. Instead, each partner reports his or her share on his or her personal profit tax return.

Question 15

If the partnership has debts or liabilities that CANNOT be paid from partnership assets, any one of the partners may be held personally liable.

Question 16

Which of the following is NOT a characteristic of a partnership?

A)The partnership pays no separate business profit tax.
B)The partners have limited liability for the debts of the partnership.
C)Each partner has a separate capital account.
D)Each partner has mutual agency.

Question 17

B. Lincoln, R. Stallings, and J. Savoie formed a partnership. The partnership agreement specified that the profits and losses will be shared in a ratio of 3:1:1, respectively. At the end of the first year of operations, the partnership had $400 000 of revenue and $320 000 of expenses. The amount that will be credited to B. Lincoln's capital account is:

A)$48 000.
B)$12 000.
C)$200 000.
D)$26 667.

Question 18

When a new partner wishes to join a partnership, the existing partnership can be amended and does not need to be dissolved.

Question 19

Each partner in a partnership:

A)has co- ownership of the assets of the partnership.
B)pays his or her share of the partnership business profit tax.
C)has limited liability for the debts of the business.
D)shares in a jointly held capital account.

Question 20

When a partner withdraws cash from a partnership, the capital account is credited and the drawings account is debited.

Question 21

In 2013, three women-S. Fogel, L. Feinblatt, and L. June-formed a partnership and each contributed $80 000. Profits and losses were to be shared equally. At the end of the first year of business, the partnership had a loss of $27 000. None of the partners took any withdrawals during the year. At the end of 2013, what was the updated balance in the capital account for S. Fogel?

A)$53 000
B)$89 000
C)$71 000
D)$76 000

Question 22

Arlene Dominic is a partner in a partnership, and at 1 July 2013, her capital balance was $42 000. On the same day, she made withdrawals of $4 000 from the partnership. What entry is made on the partnership books?

A)Debit A. Dominic, drawings; credit cash
B)Debit Cash; credit A. Dominic, drawings
C)Debit A. Dominic, capital; credit cash
D)Debit Cash; credit A. Dominic, capital

Question 23

A partnership is formed with 4 partners named Wells, Bates, McCollum and Zhang. The partnership agreement specifies that profits and losses are shared in a ratio of 1:1:2:4, respectively. At the end of the first year, the partnership earned profit of $290 000. What amount will be credited to the capital account for Wells?

A)$32 222
B)$72 500
C)$36 250
D)$145 000

Question 24

In 2013, A. Mernick and L. Gold entered into a partnership to develop real estate projects. Due to their respective roles in the business, the partnership agreement specifies a two- phase profit split. The first $90 000 will be split in a ratio of 1:2 to Mernick and Gold, respectively. All profits over $90 000 will be split equally. During 2013, the following transactions took place:
Total partnership profit was $110 000. Mernick took withdrawals of $32 000. Gold took withdrawals of $50 000.
How much profit was credited to Gold's capital account?

A)$70 000
B)$60 000
C)$72 000
D)$68 000

Question 25

On 1 August 2013, Larry Goldstein and Rafi Hassan created a partnership to produce software for online advertising. Goldstein was a lawyer and would handle all the legal matters, but Hassan was the technical whiz and would do all of the production and sales. Because most of the work would be done by Hassan, the partnership agreement specified that the yearly profit would be split in a two- phase allocation. The first $100 000 of annual profit would be split among Goldstein and Hassan in a 1:4 ratio (one part to Goldstein, four parts to Hassan). Any profit above $100 000 would be split evenly. At the onset, both men contributed $200 000 to the partnership and made no withdrawals during 2013. At the end of 2013, the partnership earned $175 000 of profit. How much was allocated to Goldstein?

A)$76 500
B)$35 000
C)$57 500
D)$28 750

Question 26

In 2013, A. Mernick and L. Gold entered into a partnership to develop real estate projects. Due to their respective roles in the business, the partnership agreement specifies a two- phase profit split. The first $90 000 will be split in a ratio of 1:2 to Mernick and Gold, respectively. All profits over $90 000 will be split equally. During 2013, the following transactions took place:
Total partnership profit was $110 000. Mernick took withdrawals of $32 000. Gold took withdrawals of $50 000.
How much profit was credited to Mernick's capital account?

A)$30 000
B)$22 000
C)$40 000
D)$8 000

Question 27

A partnership is formed with 4 partners named Wells, Bates, McCollum and Zhang. The partnership agreement specifies that profits and losses are shared in a ratio of 1:1:2:4, respectively. At the end of the first year, the partnership earned profit of $290 000. What amount will be credited to the capital account for McCollum?

A)$32 222
B)$72 500
C)$36 250
D)$145 000

Question 28

In 2013, three persons-P. Harvey, S. Perkins, and L. Levie-joined in a partnership to train service animals for people with disabilities. Each partner contributed $20 000 at the onset, and the partnership agreement specified profits to be shared equally. At the end of 2013, the partnership had earned $78 000 and none of the partners had taken any withdrawals. How much was the updated capital account balance for P. Harvey?

A)$39 000
B)$28 000
C)$42 000
D)$46 000

Question 29

In 2012, three persons-J. Jordan, F. Rebello, and R. Murfin-joined in a partnership to advise health care providers about billing procedures and legal matters. The partnership agreement specified that profits and losses were to be shared equally. At the beginning of 2013, each partner had a capital balance of $45 000. During the year, the partnership recorded a loss of $39 000, and none of the partners took any withdrawals. At the end of 2012, how much was the capital balance for R. Murfin?

A)$46 000
B)$25 000
C)$50 000
D)$32 000

Question 30

B. Lincoln, R. Stallings, and J. Savoie formed a partnership. The partnership agreement specified that the profits and losses will be shared in a ratio of 3:1:1, respectively. At the end of the first year of operations, the partnership had $400 000 of revenue and $320 000 of expenses. The amount that will be credited to R. Stalling's capital account is:

A)$12 000.
B)$16 000.
C)$16 667.
D)$48 000.

Question 31

On 1 August 2013, Larry Goldstein and Rafi Hassan created a partnership to produce software for online advertising. Goldstein was a lawyer and would handle all the legal matters, but Hassan was the technical whiz and would do all of the production and sales. Because most of the work would be done by Hassan, the partnership agreement specified that the yearly profit would be split in a two- phase allocation. The first $100 000 of annual profit would be split among Goldstein and Hassan in a 1:4 ratio (one part to Goldstein, four parts to Hassan). Any profit above $100 000 would be split evenly. At the onset, both men contributed $200 000 to the partnership and made no withdrawals during 2013. At the end of 2013, the partnership earned $175 000 of profit. How much was allocated to Hassan?

A)$117 500
B)$127 000
C)$140 000
D)$98 500

Question 32

In 2013, four persons formed a partnership. R. Allen contributed $5 000; P. Jones contributed $40 000; R. Jeffries contributed $75 000; and L. June contributed $8 000. The partnership agreement did not include any provisions designating how the profits and losses of the partnership would be split. During the first year of business, the partnership earned $89 600. No withdrawals were taken by the partners. At the end of the year, what was the balance in R. Allen's capital account?

A)$22 400
B)$16 900
C)$29 900
D)$27 400

Question 33

In 2013, four persons formed a partnership. R. Allen contributed $5 000; P. Jones contributed $40 000; R. Jeffries contributed $75 000; and L. June contributed $8 000. The partnership agreement did not include any provisions designating how the profits and losses of the partnership would be split. During the first year of business, the partnership earned $89 600. No withdrawals were taken by the partners. At the end of the year, what was the balance in Jeffries's capital account?

A)$77 400
B)$92 000
C)$97 400
D)$86 900

Question 34

W. Bell and C. Quirk started a partnership in 2013. Because Bell contributed a larger amount toward the partnership at inception, the partnership agreement specified the following split of profits and losses in a two- phase allocation. The first allocation would split profits and losses in proportion to the partners' relative capital balances up to 20% of those balances. The remainder would be split evenly. At the end of the first year, the partnership had a loss of $40 000. Partners' capital balances were as follows: W. Bell: $102 000 C. Quirk: $18 000
At the end of 2013, after the year's loss was allocated, what was the updated balance in Quirk's capital account?

A)$13 600
B)$11 600
C)$14 400
D)$6 400

Question 35

W. Bell and C. Quirk started a partnership in 2013. Because Bell contributed a larger amount toward the partnership at inception, the partnership agreement specified the following split of profits and losses in a two- phase allocation. The first allocation would split profits and losses in proportion to the partners' relative capital balances up to 20% of those balances. The remainder would be split evenly. At the end of the first year, the partnership had a loss of $40 000. Partners' capital balances were as follows: W. Bell: $102 000 C. Quirk: $18 000 How much of the loss was allocated to C. Quirk?

A)($8 000)
B)($11 600)
C)($3 600)
D)($11 900)

Question 36

A partnership is formed with 4 partners named Wells, Bates, McCollum and Zhang. The partnership agreement specifies that profits and losses are shared in a ratio of 1:1:2:4, respectively. At the end of the first year, the partnership earned profit of $290 000. What amount will be credited to the capital account for Zhang?

A)$36 250
B)$145 000
C)$72 500
D)$32 222

Question 37

W. Bell and C. Quirk started a partnership in 2013. Because Bell contributed a larger amount toward the partnership at inception, the partnership agreement specified the following split of profits and losses in a two- phase allocation. The first allocation would split profits and losses in proportion to the partners' relative capital balances up to 20% of those balances. The remainder would be split evenly. At the end of the first year, the partnership had a loss of $40 000. Partners' capital balances were as follows: (This is not like the example in the chapter.) W. Bell: $102 000 C. Quirk: $18 000 How much of the loss was allocated to W. Bell?

A)($20 000)
B)($26 900)
C)($28 400)
D)($20 400)

Question 38

On 1 August 2013, Larry Goldstein and Rafi Hassan created a partnership to produce software for online advertising. Goldstein was a lawyer and would handle all the legal matters, but Hassan was the technical whiz and would do all of the production and sales. Because most of the work would be done by Hassan, the partnership agreement specified that the yearly profit would be split in a two- phase allocation. The first $100 000 of annual profit would be split among Goldstein and Hassan in a 1:4 ratio (one part to Goldstein, four parts to Hassan). Any profit above $100 000 would be split evenly. At the onset, both men contributed $200 000 to the partnership and made no withdrawals during 2013. At the end of 2013, the partnership earned $175 000 of profit. At the end of 2013, after the year's profit was distributed, what was the balance in Hassan's capital account?

A)$317 500
B)$197 500
C)$257 500
D)$212 000

Question 39

On 1 August 2013, Larry Goldstein and Rafi Hassan created a partnership to produce software for online advertising. Goldstein was a lawyer and would handle all the legal matters, but Hassan was the technical whiz and would do all of the production and sales. Because most of the work would be done by Hassan, the partnership agreement specified that the yearly profit would be split in a two- phase allocation. The first $100 000 of annual profit would be split among Goldstein and Hassan in a 1:4 ratio (one part to Goldstein, four parts to Hassan). Any profit above $100 000 would be split evenly. At the onset, both men contributed $200 000 to the partnership and made no withdrawals during 2013. At the end of 2013, the partnership earned $175 000 of profit. At the end of 2013, after the year's profit was distributed, what was the balance in Goldstein's capital account?

A)$212 000
B)$197 500
C)$257 500
D)$317 500

Question 40

W. Bell and C. Quirk started a partnership in 2013. Because Bell contributed a larger amount toward the partnership at inception, the partnership agreement specified the following split of profits and losses in a two- phase allocation. The first allocation would split profits and losses in proportion to the partners' relative capital balances up to 20% of those balances. The remainder would be split evenly. At the end of the first year, the partnership had a loss of $40 000. Partners' capital balances were as follows: W. Bell: $102 000 C. Quirk: $18 000
At the end of 2013, after the year's loss was allocated, what was the updated balance in Bell's capital account?

A)$130 400
B)$56 920
C)$73 600
D)$28 400

Question 41

In 2013, A. Mernick and L. Gold entered into a partnership to develop real estate projects. Each partner contributed $200 000. Due to their respective roles in the business, the partnership agreement specifies a two- phase profit split. The first $90 000 will be split in a ratio of 1:2 to Mernick and Gold, respectively. All profits over $90 000 will be split equally. During 2013, the following transactions took place: Total partnership profit was $110 000. Mernick took withdrawals of $32 000. Gold took withdrawals of $50 000.
At the end of the year, what was the balance in Mernick's capital account?

A)$198 000
B)$208 000
C)$168 000
D)$170 000

Question 42

When a new person wishes to be admitted to an existing partnership on an equal profit- sharing basis, the amount the new person must invest to be admitted is not necessarily tied to the total capital of the partnership.

Question 43

If a new person wishes to be admitted to a partnership with two existing partners, and the existing partners accept, then the new person is automatically entitled to share in one- third the profits of the partnership.

Question 44

When one person purchases the partnership interest of a partner, the cash is paid directly to the existing partner, not to the partnership.

Question 45

In 2013, A. Mernick and L. Gold entered into a partnership to develop real estate projects. Each partner contributed $200 000. Due to their respective roles in the business, the partnership agreement specifies a two- phase profit split. The first $90 000 will be split in a ratio of 1:2 to Mernick and Gold, respectively. All profits over $90 000 will be split equally. During 2013, the following transactions took place: Total partnership profit was $110 000. Mernick took withdrawals of $32 000. Gold took withdrawals of $50 000.
At the end of the year, what was the balance in Gold's capital account?

A)$220 000
B)$218 000
C)$198 000
D)$270 000

Question 46

When a new partner pays a bonus to join an existing partnership, the bonus amount is the amount in excess of his or her proportionate share of the total capital of the new partnership.

Question 47

When a partner withdraws from the partnership for a settlement that is less than his or her capital balance, the difference between the exiting partner's capital and the settlement amount is added to the capital of the remaining partners.

Question 48

When a partner withdraws from the partnership for a settlement that is more than his or her capital balance, the difference between the exiting partner's capital and the settlement amount goes to increase the capital balances of the remaining partners.

Question 49

When a new person is admitted into a partnership by investing assets in the partnership at book value, the new person:

A)pays cash directly to the existing partners in amounts equal to their respective capital balances.
B)transfers assets to the partnership which are equal in value to the existing partners' capital balances (no bonus).
C)pays cash directly to existing partners based on the market value of the partnership's assets.
D)transfers assets to the partnership which are equal in value to the market value of the partnership's assets.

Question 50

When one person purchases the partnership interest of a partner, a new partnership agreement will have to be created.

Question 51

A new partner may be admitted to a partnership without dissolving the partnership.

Question 52

When a new partner pays a bonus to join an existing partnership, the bonus amount is allocated to the capital accounts of the existing partners.

Question 53

Whenever there is a change in the mix of partners, the old partnership is dissolved and a new one begins.

Question 54

On 1 July, Herb Block purchased the partnership interest of James Steinfort for $40 000. The balance in Steinfort's capital account prior to the purchase was $32 000. How will this transaction be reflected on the partnership's books?

A)Partnership will debit cash for $8 000 and credit Block's account for $40 000.
B)No entries will be made by the partnership because the purchase is a personal transaction between the two persons and does not involve the partnership books.
C)Partnership will close out Steinfort's account for $32 000, open Block's account for $40 000 and record a gain of $8 000.
D)Partnership will close out Steinfort's capital account for $32 000 and will open up a new capital account for Block in the same amount.

Question 55

When a new partner pays a bonus to join an existing partnership, the bonus amount is recorded as a gain on the partnership books.

Question 56

If a new person purchases the partnership interest of an existing partner, the new person assumes the same capital balance as the old partner, regardless of whether the amount paid is more or less than the existing partner's capital account balance.

Question 57

When a new person purchases the partnership interest of an existing partner, which of the following is TRUE?

A)The amount paid for the partnership interest is recorded on the partnership books.
B)The purchase price is determined by the balance in the existing partner's capital account.
C)The partnership will record either a gain or a loss if the amount paid is higher or lower than the existing partner's capital account balance.
D)The newly admitted partner will assume the same capital balance of the old partner regardless of the amount paid.

Question 58

When a new person wishes to be admitted into an existing partnership that consists of two partners and wishes to obtain an equal share (1/3 share)of the new partnership, the amount that the new person must invest is required to be the average of the capital balances of the existing partners.

Question 59

When a new person wishes to join an existing partnership, the difference between what the new partner contributes and the value the new partner receives in capital is either a bonus to the existing partners or a bonus to the new partner.

Question 60

If a new person purchases the partnership interest of an existing partner, and the amount paid is more or less than the existing partner's capital account balance, the partnership must record either a gain or a loss for the difference.

Question 61

Ivey and Balzac had a partnership that distributed profits in a ratio of 1:3 respectively. At the end of 2013, they agreed to liquidate the partnership. Prior to liquidation, the partnership had Cash of $50 000, Inventory of $75 000, Equipment (net)of $235 000, and no payables. Partner capital balances were: Ivey: $100 000 Balzac: $260 000
The inventory was sold for $59 000 and the equipment was sold for $243 000. How much cash was paid to Balzac in the final settlement?

A)$106 000
B)$98 000
C)$254 000
D)$176 000

Question 62

Which of the following statements about the liquidation of a partnership is TRUE?

A)The final cash distribution is always based on equal shares.
B)The final cash distribution is always based on the profit sharing formula specified in the partnership agreement.
C)The final cash distribution is based on the partners' capital account balances.
D)Gains and losses from the disposal of assets are always distributed to the partner's capital accounts based on their respective percentage of total capital.

Question 63

Ivey and Balzac had a partnership that distributed profits in a ratio of 1:3 respectively. At the end of 2013, they agreed to liquidate the partnership. Prior to liquidation, the partnership had Cash of $50 000, Inventory of $75 000, Equipment (net)of $235 000, and no payables. Partner capital balances were: Ivey: $100,000 Balzac: $260,000
The inventory was sold for $59 000 and the equipment was sold for $243 000. After the assets were sold, what was Balzac's capital balance?

A)$98 000
B)$254 000
C)$106 000
D)$176 000

Question 64

Liquidation of a partnership often includes sale of assets at a loss. When the losses occur, each partner capital account is debited based on the profit and loss distribution ratio set out in the partnership agreement.

Question 65

The liquidation of a partnership means that:

A)the partnership simply ceases doing business.
B)a new partner or partner is admitted, requiring a new partnership agreement.
C)partnership assets are sold, liabilities paid, and remaining cash distributed to the partners.
D)one or more partners withdraw from the partnership, requiring a new partnership agreement.

Question 66

Ivey and Balzac had a partnership that distributed profits in a ratio of 1:3 respectively. At the end of 2013, they agreed to liquidate the partnership. Prior to liquidation, the partnership had Cash of $50 000, Inventory of $75 000, Equipment (net)of $235 000, and no payables. Partner capital balances were: Ivey: $100 000 Balzac: $260 000
The inventory was sold for $59 000 and the equipment was sold for $243 000. After the assets were sold, what was Ivey's capital balance?

A)$98 000
B)$106 000
C)$176 000
D)$254 000

Question 67

In most respects, a balance sheet for a partnership is similar to a balance sheet for a proprietorship EXCEPT for the fact that the equity section shows a capital account for each partner.

Question 68

The key difference between a partnership balance sheet and a standard business balance sheet is that the partnership balance sheet:

A)shows the division of each asset into partners' respective interests.
B)shows a separate retained earnings amount for each partner.
C)shows each partner's capital account as a separate item.
D)includes ordinary shares but not Share capital in excess of par.

Question 69

When a partnership is liquidated, the assets are sold for market value. Any gains and losses should be split according to the specified distribution of profits and losses as stated in the partnership agreement.

Question 70

When a partnership is liquidated, the assets are sold for market value and the gains and losses distributed appropriately to the partners' capital accounts. The final cash distribution should be split according to the specified distribution of profits and losses as stated in the partnership agreement.

Question 71

The key difference between a partnership income statement and a standard business income statement is that the partnership income statement:

A)shows the distribution of profit/(loss)to each partner below the profit/(loss)line.
B)shows the division of each expense into partners' respective interests.
C)does not show sales revenues.
D)is split into separate columns, one for each partner.

Question 72

If a partner withdraws from a partnership and elects to take some of the assets of the partnership away, the partnership will use the current book value of those assets to calculate the final settlement with the withdrawing partner.

Question 73

When a partner withdraws from a partnership at book value, the partner will take a distribution of assets in the value of his or her capital account balance.

Question 74

Ivey and Balzac had a partnership that distributed profits in a ratio of 1:3 respectively. At the end of 2013, they agreed to liquidate the partnership. Prior to liquidation, the partnership had Cash of $50 000, Inventory of $75 000, Equipment (net)of $235 000, and no payables. Partner capital balances were: Ivey: $100 000 Balzac: $260 000
The inventory was sold for $59 000 and the equipment was sold for $243 000. How much cash was paid to Ivey in the final settlement?

A)$98 000
B)$254 000
C)$176 000
D)$106 000

Question 75

When one partner leaves the partnership for any reason, the old partnership ceases to exist.