Deck 12: Partnerships

Question 1

A partnership business is a:

A)firm listed in a stock exchange, in which no owner owns a majority of equity to control the firm.
B)business with two or more owners that is not organized as a corporation.
C)corporation in which the owners have limited liability for the corporation's liabilities.
D)private firm in which all owners have equal ownership and limited liabilities in the event of a bankruptcy.

Answer 1

B

Question 2

In a general partnership business, each partner has limited personal liability for the debts of the business.

Answer 2

False

Question 3

Mutual agency means that every partner can bind the business to a contract within the scope of its regular business operations.

Answer 3

True

Question 4

In a general partnership, the general partners have unlimited personal liability for the debts of the business.

Question 5

The articles of partnership is a contract between partners that specifies such items as the name, location, and nature of the business; the name, capital contribution, and duties of each partner; and the method of sharing profits and losses among the partners.

Question 6

An S corporation is a corporation with 100 or fewer stockholders that can elect to be taxed as a partnership.

Question 7

The addition of a new partner to a firm does not dissolve the old partnership.

Question 8

Which of the following is a specification in the articles of partnership?

A)procedure for withdrawal of assets by the partners
B)procedure for distribution of dividends
C)method of valuation of the assets
D)selection of an appropriate depreciation method

Question 9

In a partnership, when a partner contributes a particular asset to the firm, he is considered the sole owner of the asset.

Question 10

A written partnership agreement is also known as the articles of partnership.

Question 11

In a partnership firm, if one partner cannot pay his or her part of the debt, the other partner or partners must pay the total.

Question 12

Which of the following is true of a partnership?

A)All partnership firms are public firms.
B)Partnership firms have a limited life.
C)The owners of the partnership have limited liabilities for the partnership's debts.
D)The maximum loss an owner of a partnership can incur is the invested amount.

Question 13

Which of the following will result in the dissolution of a partnership?

A)admission of a new partner
B)purchase of plant assets for the business
C)contribution of an asset by an existing partner
D)partner withdrawal of cash

Question 14

In a partnership, the income is taxed at the partnership level as well as at the personal level of the owners.

Question 15

The income of a limited liability company cannot be taxed to the members as though they were partners.

Question 16

In a limited liability partnership, each partner is not personally liable for the malpractice committed by another partner.

Question 17

A partnership is a business with two or more owners that is organized as a corporation.

Question 18

An S corporation pays no corporate income tax.

Question 19

Which of the following is true of a written partnership agreement?

A)It is an agreement in which the partners hold a direct agreement with the registration body, and the registration body acts as an interlocutor between the partners.
B)It is an informal agreement between the partners and is not legally binding.
C)It is a legally-binding agreement between the owners which explains the procedures for liquidating the partnership.
D)It is a legally-binding agreement between the proprietors and the stock exchange where it is listed regarding the profit sharing between the owners.

Question 20

Which of the following is a characteristic of a partnership?

A)pays corporate taxes
B)listed in a stock exchange
C)organized as a corporation
D)a written agreement

Question 21

Which of the following is a disadvantage of partnership firms?

A)These cannot be dissolved without the permission of SEC.
B)These are taxed at multiple levels: corporate level and individual level.
C)These have more difficulty in raising capital as compared to a sole proprietorship.
D)These have a mutual agency which creates personal obligations for each partner.

Question 22

In a partnership, mutual agency means that:

A)the addition of a new partner does not dissolve the old partnership and mutually exchange the ownership with the exiting partner.
B)every partner must bring the same amount of capital.
C)the agency problem between the principal and agents are mutual and gets neutralized.
D)any partner can bind the business to a contract within the scope of its regular business operations.

Question 23

Unlike in a corporation, the owners of a partnership firm:

A)have limited claim on the profit made by the business.
B)are restricted from dissolving the business without prior notice to the SEC.
C)have an unlimited personal liability for the debts of the business.
D)are taxed at two levels.

Question 24

Which of the following is true of a limited liability company?

A)A limited liability company is not obliged to file the articles of organization with the state.
B)The owners of a limited liability company are personally liable for the business's debts.
C)A limited liability company can elect not to pay business income tax.
D)The owners of a limited liability company cannot participate actively in management of the business.

Question 25

A general partner in a limited partnership:

A)has less personal liability for the debts of the business than the limited partners.
B)is the major shareholder and does not get involved in the daily business activities.
C)has unlimited personal liability in the partnership.
D)is the first owner to receive a share of profits and losses.

Question 26

In which of the following ways does a limited partnership differ from a general partnership?

A)In a limited partnership, the general partner has an unlimited personal liability in the partnership; whereas in a general partnership, all partners have same level of personal liability.
B)In a limited partnership, all the partners make an equal contribution to the daily operations; whereas in a general partnership, the general partner assumes a greater responsibility of the operation.
C)In a limited partnership, there will be only one class of partners named limited partners; whereas in a general partnership, there will be only one class of partners named general partners.
D)In a limited partnership, each partner is not personally liable for the malpractice committed by another partner; whereas in a general partnership, only the general partner is personally liable for the malpractice committed by another partner.

Question 27

In which of the following types of business organizations does the owners have unlimited personal liabilities for the business's debts?

A)general partnership
B)S Corporation
C)C Corporation
D)limited liability company

Question 28

Which of the following is true of a general partnership?

A)Each partner has all the privileges and risks of ownership.
B)The income of a general partnership is double-taxed.
C)Each partner's liability is limited to the capital contributed by him.
D)When a general partner contributes a particular asset to the firm, he is considered the sole owner of the asset.

Question 29

A(n)________ must carry large insurance policies to protect the public in case the partnership is found guilty of malpractice.

A)general partnership
B)S Corporation
C)limited liability partnership
D)C Corporation

Question 30

Which of the following is true of limited partners in a limited partnership?

A)They have limited liability for the debts of the business but their potential for profits is unlimited.
B)They usually have first claim to profits and losses made by the business.
C)They assume the same operational duties as that of the general partner.
D)They have to assume a liability beyond their contribution in the business in the event of a bankruptcy.

Question 31

A firm has two partners: Jim and Bill. Jim owns 60% of the partnership and Bill owns 40%. In which of the following transactions will the partnership be responsible for the partners' actions?

A)Jim signing the contract as a guarantor for Bill's personal loan
B)Jim buying a laptop on credit for personal use
C)Bill signing a contract to buy furniture for official use in the partnership
D)Bill defaulting on payment of his credit card bill

Question 32

Which of the following types of business organizations should pay business income tax?

A)S Corporation
B)sole proprietorship
C)general partnership
D)C Corporation

Question 33

Which of the following businesses is most likely to be organized as an LLP?

A)a bookstore run by two partners
B)an international retail chain
C)an accounting firm run by two partners
D)a stationery store owned by an individual

Question 34

Which of the following is an advantage of a limited liability company compared to a partnership?

A)Unlike a partnership, the members of a limited liability company can participate actively in management of the business.
B)Unlike a partnership, the members of a limited liability company are not personally liable for the business's debts.
C)Unlike a partnership, the members of a limited liability company are taxed at the business level and not double-taxed.
D)Unlike a partnership, the members of a limited liability company need not file articles of organization with the state.

Question 35

Which of the following is an additional feature of a limited liability partnership compared to a limited partnership?

A)It has a general partner who does not participate in the day-to-day operations of the partnership.
B)It limits the personal liability of limited partners to their contribution in the business.
C)It restricts the general partner from taking high-risk projects.
D)It protects each partner from any malpractice or negligence of another partner's actions.

Question 36

A ________ is a form of business organization that combines the advantages of both a partnership and a corporation.

A)limited liability company
B)limited liability partnership
C)C Corporation
D)general partnership

Question 37

Which of the following is an advantage of a limited liability company compared to a corporation?

A)Unlike a corporation, the members of a limited liability company are not personally liable for the business's debts.
B)Unlike a corporation, the members of a limited liability company need not file articles of organization with the state.
C)Unlike a corporation, the members of a limited liability company cannot participate actively in management of the business.
D)Unlike a corporation, the members of a limited liability company are taxed at the individual level only.

Question 38

Which of the following is true of the assets of a partnership?

A)The partner who is more actively involved in the daily business affairs is considered to be the sole owner of the partnership's assets.
B)Any new assets purchased by the partnership are jointly owned by each partner.
C)When a partner contributes a particular asset to the firm, he is considered to be the sole owner of the asset.
D)In case of liquidation of assets, the partners must be paid based on the profit sharing ratio of the partnership.

Question 39

In a ________, each partner is not personally liable for the malpractice committed by another partner.

A)general partnership
B)limited liability partnership
C)limited partnership
D)sole proprietorship

Question 40

Which of the following is an advantage of a partnership?

A)Partnerships are less expensive to organize than a corporation.
B)The owners of a partnership are generally exempted from personal taxes.
C)The owners who contribute an asset to the partnership retain absolute claim on the asset.
D)Partnerships have a higher cost of financial distress than those of a corporation.

Question 41

The financial statements of a partnership are similar to the statements of a sole proprietorship in all aspects.

Question 42

Which of the following is true of a partnership balance sheet?

A)Each partner's assets will be shown separately.
B)Each partner's liabilities will be shown separately.
C)Each partner's equity will be shown separately.
D)Each partner's assets, liabilities, and equity will be shown separately.

Question 43

An asset received from a partner as a contribution is recorded at its historical cost.

Question 44

Andy and Ian formed a partnership on April 1, 2015. Andy contributes equipment, purchased at a price of $85,000 on April 1, 2014, to the business. The accumulated depreciation of the equipment is $15,000. The current market value of the equipment is $75,000. The value of the equipment recorded in the partnership journal is ________.

A)$70,000
B)$75,000
C)$60,000
D)$85,000

Question 45

Tim and Michelle have decided to form a partnership. Tim contributes $8,000 cash and $2,000 in merchandise inventory. While journalizing this transaction:

A)Tim, Capital will be debited for $10,000.
B)Tim, Capital will be credited for $10,000.
C)Tim, Capital will be credited for $6,000 and Michelle, Capital will be credited for $4,000.
D)Tim, Capital will be debited for $6,000 and Michelle, Capital will be debited for $4,000.

Question 46

Rodriguez and Ying start a partnership business on July 1, 2014. Rodriguez brings in cash worth $4,000, furniture with a current market value of $50,000, payables with a current market value of $15,000 and equipment with a current market value of $26,000. Which of the following is the correct journal entry to record the above transaction?

A)
B)
C)
D)

Question 47

A partnership records the partners' contributions at the ________.

A)current market value
B)historical value
C)net realizable value
D)average value

Question 48

Profits and losses in a partnership must be shared based on each partner's capital balances.

Question 49

Sasha and Michelle form a partnership. Sasha contributes $16,000 cash and merchandise inventory with a current market value of $4,000. While journalizing this transaction:

A)Merchandise Inventory will be credited for $4,000.
B)Merchandise Inventory will be debited for $4,000.
C)Merchandise Inventory will be credited for $2,400.
D)Merchandise Inventory will be debited for $2,400.

Question 50

A(n)________ does not require any permission from the state to be set up.

A)LLC
B)partnership
C)S Corporation
D)C Corporation

Question 51

Steve owns 60% and Mark owns 40% of a partnership business. For developing the business, they purchased equipment for $10,000. The current market value of the equipment at the time of purchase was $9,500. At the time of the balance sheet preparation, depreciation of $200 was incurred. Based on the information provided, which of the following is true of the partnership balance sheet?

A)The Equipment account will be debited at $9,500 on the date of purchase.
B)The Equipment account will be debited at $9,300 on the date of purchase.
C)The Equipment account will be debited at $10,000 on the date of purchase.
D)The Equipment account will be debited at $9,800 on the date of purchase.

Question 52

If a partner's capital account is credited with a certain amount that he contributed in cash, which of the following statements will be affected?

A)withdrawal statement
B)bank reconciliation statement
C)statement of partners' equity
D)interest payment schedule

Question 53

The statement of partners' equity shows the changes in each partner's capital account for a specific period of time.

Question 54

In a partnership business, Jack has an ownership of 60% and Teresa has an ownership of 40%. For developing the business, Jack contributed $7,000 and Teresa contributed $3,000 on July 1. Which of the following is true of this scenario?

A)Either the total contribution of $10,000 or the contribution in the ownership ratio will be recorded.
B)Only the total contribution of $10,000 will be recorded.
C)Individual contribution of $7,000 by Jack and $3,000 by Teresa will be recorded.
D)60% of Jack's contribution and 40% of Teresa's contribution will be recorded.

Question 55

Rodriguez and Ying start a partnership business on July 1, 2014. Rodriguez brings in cash worth $4,000, furniture with a current market value of $50,000, and computer equipment. The computer equipment cost $45,000 in 2011 and has an accumulated depreciation of $25,000. The current market value of the computer equipment is $18,000. At what value should the computer equipment be recorded in the books of the partnership firm?

A)$45,000
B)$18,000
C)$20,000
D)$25,000

Question 56

Edwin and Darren have decided to form a partnership. Edwin contributes $80,000 cash and merchandise inventory with a current market value of $20,000. Darren contributes $2,100 cash and office furniture with a current market value of $2,800. While journalizing this transaction:

A)Office Furniture will be debited for $1,120.
B)Office Furniture will be credited for $2,800.
C)Office Furniture will be debited for $2,800.
D)Office Furniture will be credited for $1,120.

Question 57

Given below is a balance sheet of Incrad Clothes, a partnership firm, as of December 31, 2013. With regard to the above table, which of the following statements is true?

A)The computer was purchased at a cost less than $15,000.
B)The bank loan of $25,000 is part of the Partner's equity.
C)Brad and Chad have limited liabilities for the partnership's debts because it is a limited liability company.
D)The current market value of the furniture is $12,000.

Question 58

In a partnership balance sheet, the each partner's assets, liabilities, and equity will be shown separately.

Question 59

In a partnership business, George has an ownership of 60% and Ben has an ownership of 40%. For developing the business, they purchased equipment for $10,000. George contributes a sum of $7,000 and Ben makes a contribution of $3,000 on July 1. Based on the information provided, which of the following is true of the partnership balance sheet?

A)Both George, Capital and Ben, Capital will increase by $10,000.
B)George, Capital will increase by $7,000 and Ben, Capital will increase by $3,000.
C)George, Capital will increase by $10,000 and Ben, Capital will remain unchanged.
D)George, Capital will increase by $6,000 and Ben, Capital will increase by $4,000.

Question 60

Which of the following is true of a partnership balance sheet?

A)Unlike a corporation's balance sheet, it includes all information from its income statement.
B)It excludes the depreciation expense.
C)It reports a separate capital account for each partner.
D)It details the interest expenses of the business.

Question 61

Bill and Bob share profits of their partnership firm in the ratio of 5:1. If the net income of the firm is $30,000, calculate the share of Bill's net income.

A)$20,000
B)$5,000
C)$30,000
D)$25,000

Question 62

Bob and Bill allocate 2/3 of the profits and losses to Bob and 1/3 to Bill. The net income of the firm is $30,000. The journal entry to close the Income Summary will include:

A)credit to Income Summary for $20,000.
B)debit to Bob, Capital for $10,000.
C)credit to Bob, Capital for $20,000.
D)credit to Income Summary for $30,000.

Question 63

Farrell and Jimmy enter into a partnership agreement on May 1, 2015. Farrell contributes $50,000 and Jimmy contributes $150,000 as their capital contributions. They decide to share profits and losses in the ratio of their respective capital account balances. The net income for the year ended December 31, 2015 is $60,000. Which of the following amounts should be credited to Jimmy's capital account?

A)$40,000
B)$60,000
C)$45,000
D)$15,000

Question 64

Adam, Bill, and Charlie are partners. The profit and rule sharing rule between them is 2:5:3, with Bill getting the most and Adam getting the least. The partnership incurs a net loss of $72,000. While closing the Income Summary:

A)Income Summary will be debited for $72,000.
B)Adam, Capital will be debited for $14,400.
C)Adam, Capital will be credited for $36,000.
D)Charlie, Capital will be credited for $36,000.

Question 65

If the partnership agreement specifies a method for sharing profits but not losses, then losses are shared the same way as profits.

Question 66

Keith and Jim formed a partnership business. The partnership incurs a net loss of $6,000 and the partners agreed to share the losses equally. The entry to close the net loss will:

A)debit Income Summary by $6,000.
B)decrease Keith, Capital by $3,000.
C)increase Jim, Capital by $3,000.
D)decrease Jim, Capital by $6,000.

Question 67

Steve and Roger allocate 2/3 of the profits and losses to Steve and 1/3 to Roger. If the net income of the firm is $30,000, calculate the share of Roger's net income.

A)$20,000
B)$10,000
C)$30,000
D)$25,000

Question 68

Albert, Billy, and Cathy share profits and losses of their partnership as 2:5:3. If the net income is $50,000, calculate the profit share of Albert.

A)$20,000
B)$15,000
C)$25,000
D)$10,000

Question 69

The net income (loss)allocated to each partner should always equal the total net income (loss)of the partnership.

Question 70

Adam, Bill, and Charlie are partners. The profit and rule sharing rule between them is 2:5:3, with Bill getting the most and Adam getting the least. The partnership incurs a net loss of $18,000. While closing the Income Summary:

A)Income Summary will be credited for $5,400.
B)Adam, Capital will be debited for $5,400.
C)Adam, Capital will be credited for $5,400.
D)Charlie, Capital will be debited for $5,400.

Question 71

Alex, Brad, and Carl are partners. The profit and rule sharing rule between them is 4:3:3 in the alphabetical order. The partnership incurs a net loss of $100,000. Before preparing the closing journal entry the:

A)Income Summary account will have a debit balance of $100,000.
B)Alex, Capital account will have a debit balance of $40,000.
C)Alex, Capital account will have a credit balance of $40,000.
D)Carl, Capital account will have a debit balance of $30,000.

Question 72

Like a sole proprietorship statement of owner's equity, the statement of partners' equity will show all the partners' capital accounts as one account.

Question 73

Farrell and Jimmy enter into a partnership agreement on May 1, 2015. Farrell contributes $50,000 and Jimmy contributes $150,000 as their capital contributions. They decide to share profits and losses in the ratio of their respective capital account balances. The net income for the year ended December 31, 2015 is $60,000. Which of the following is the correct journal entry to record the allocation of profit?

A)
B)
C)
D)

Question 74

Dana and Emile allocate 2/3 of the profits and losses to Dana and 1/3 to Emile. The net income of the firm is $30,000. The journal entry to close the Income Summary will include:

A)credit to Income Summary for $20,000.
B)debit to Dana, Capital for $10,000.
C)credit to Emile, Capital for $20,000.
D)debit to Income Summary for $30,000.

Question 75

Felix and Ian allocate 2/5 of the profits and losses to Felix and 3/5 to Ian. The net income of the firm is $30,000. The journal entry to close the Income Summary will include:

A)credit to Ian, Capital for $18,000.
B)debit to Felix, Capital for $18,000.
C)debit to Felix, Capital for $12,000.
D)credit to Income Summary for $30,000.

Question 76

The withdrawal accounts of a partnership are closed at the end of the period, exactly as they are for a sole proprietorship.

Question 77

Andre, Beau, and Caroline share profits and losses of their partnership as 2:2:5. If the net income is $900,000, calculate the profit share of Caroline.

A)$200,000
B)$500,000
C)$250,000
D)$100,000

Question 78

Albert, Billy, and Cathy share profits and losses of their partnership as 2:5:3. If the net income is $50,000, calculate the profit share of Billy.

A)$20,000
B)$15,000
C)$25,000
D)$10,000

Question 79

Which of the following statements is true of partnership?

A)If the partners have no partnership agreement specifying how to divide profits and losses, then they share equally.
B)It is legally required to share the profit and losses equally, irrespective of the partnership agreement.
C)The stated ratio of profit sharing needs to be approved by the SEC.
D)The profit sharing is always based on each partner's capital balances and any losses will be shared equally.

Question 80

David, Chris and John started off a partnership firm on July 31, 2014. They decided to share profits equally, but also inserted a clause in the partnership agreement whereby any loss suffered would be borne in the ratio 3:2:1. For the year ended December 31, 2014, the firm earned a net income of $45,000. However, for the year ended December 31, 2015, the firm incurred a loss of $60,000. Assuming that John had an initial capital contribution of $40,000 and made no further withdrawals, what is the balance of John's Capital account as of December 31, 2015? (Assume that none of the partners made any further contributions to their capital accounts.)

A)$45,000
B)$40,000
C)$55,000
D)$35,000