Deck 17: Partnership

Question 1

Articles of partnership:

A)are required to form a partnership by federal law.
B)are a formal written agreement that states the partners' relationship.
C)may be an oral agreement.
D)Both B and C are correct.

Answer 1

D

Question 2

Since all partners are bound together in the agreement and each acts on the behalf of the partnership,________ has been established.

A)limited life
B)limited risk
C)mutual agency
D)unlimited liability

Answer 2

C

Question 3

All assets held by a partnership are:

A)co-owned by all partners.
B)owned by the partner(s)who purchased the assets.
C)owned by the partners based on investment percentage.
D)owned by the partnership.

Answer 3

A

Question 4

A partnership cannot be formed with an oral agreement.

Question 5

Which of the following is not generally written into the articles of partnership agreement?

A)Rights and responsibilities of each partner
B)Provisions for admission of new partners
C)Amount that each partner is investing
D)All are written into the agreement.

Question 6

A general partner is:

A)personally liable for all of the debts of the partnership.
B)liable for only the amount of his/her investment.
C)a partner that is liable for the amount of taxes paid each period.
D)None of these answers are correct.

Question 7

The actions of one partner are binding on all of the other partners.This characteristic is called:

A)mutual agency.
B)exclusive agency.
C)unlimited life.
D)limited liability.

Question 8

The partnership dissolves when a partner leaves.This characteristic is called:

A)mutual agency.
B)limited life.
C)limited liability.
D)unlimited life.

Question 9

Nathan Long is entering into a partnership with Terri.Nathan is investing $2,000 cash and equipment currently on Nathan's books at $6,000 and accumulated depreciation of $1,000.The equipment has a fair market value of $4,000.The entry to record Nathan's investment should include be to:

A)debit Cash $2,000; debit Equipment $6,000; credit Accumulated Depreciation $1,000; credit Long,Capital $7,000.
B)debit Cash $2,000; debit Equipment $6,000; credit Accumulated Depreciation $2,000; credit Long,Capital $6,000.
C)debit Long,Capital $6,000; debit Accumulated Depreciation $2,000; credit Cash $2,000; credit Equipment $6,000.
D)debit Cash $2,000; debit Equipment $4,000; credit Long,Capital $6,000.

Question 10

Which of the following is true of a partnership?

A)Actions of one partner are binding on all the other partners.
B)Each partner is individually liable for partnership debts.
C)All of the owners always share income and losses equally.
D)Both A and B are correct.

Question 11

In comparison with the proprietorship form of business organization,forming a partnership offers which of the following advantages?

A)Limited life
B)Legal liability of each partner for all of the debts
C)Combination of ability and experience of the partners
D)Simple transfer of interest in the partnership to outsiders

Question 12

The accounting procedures are the same for sole proprietorships as for partnerships with the exception of:

A)the asset section includes more than one cash account.
B)the liability section.
C)the revenue section.
D)the capital section is now divided per the number of partners.

Question 13

Many associations such as medical centers and law firms could organize as a:

A)sole proprietorship.
B)corporation.
C)partnership.
D)All of the above.

Question 14

Using its book value,Partner C invested equipment which had been valued over the past year using straight-line when declining balance was appropriate.This error would cause:

A)future period's net income to be understated.
B)future period's net income to be overstated.
C)this period end assets to be understated.
D)None of these are correct.

Question 15

Laura's investment in a new partnership includes $1,000 cash and $5,000 equipment.The new partnership is assuming $500 of Laura's accounts payable.The partnership entry should be to:

A)debit Laura,Capital $5,500; debit Accounts Payable $500; credit Cash $1,000; credit Equipment $5,000.
B)debit Cash $1,000; debit Equipment $5,000; credit Laura Capital,$6,000.
C)debit Cash $1,000; debit Equipment $5,000; credit Accounts Payable $500; credit Laura,Capital,$5,500.
D)debit Laura,Investment $5,500; credit Capital $5,500.

Question 16

When two proprietors decide to combine their businesses and form a partnership,GAAP usually requires that non-cash assets be taken over at their:

A)residual value on the date of the partnership.
B)book value on the date of the partnership.
C)fair market value on the date of the partnership.
D)historical cost on the date of the partnership.

Question 17

Partner A invested furniture that was recorded at a value below the fair market value.This error would cause:

A)the period's net income to be overstated.
B)the period end capital to be overstated.
C)the period end assets to be overstated.
D)the period end assets to be understated.

Question 18

Tricia and Jennifer formed a partnership.Tricia invested $10,000 cash; Jennifer invested $5,000 cash,equipment valued at $6,000,and $1,000 accounts payable.The proper entry to record this is:

A)debit Cash 15,000; debit Equipment 6,000; credit Accounts Payable $1,000; credit Tricia's Capital $10,000; and credit Jennifer's Capital $10,000.
B)debit Cash 15,000; debit Equipment 6,000; debit Accounts Payable $1,000; credit Tricia's Capital $10,000; and credit Jennifer's Capital $10,000.
C)debit Cash $15,000; debit Equipment $6,000; credit Tricia's Capital $10,000; and credit Jennifer's Capital $10,000.
D)debit Cash $15,000; debit Equipment $6,000; credit Tricia's Capital $10,000; and credit Jennifer's Capital $11,000.

Question 19

When the obligations of a partnership cannot be met,each partner is liable for the obligation.This characteristic is called:

A)limited life.
B)unlimited liability.
C)limited liability.
D)mutual agreement.

Question 20

David and Daniel formed a partnership.David invested $10,000,cash; Daniel invested $5,000 cash and equipment valued at $6,000.The proper entry to record this is to:

A)debit Cash $15,000; debit Equipment $6,000; credit Capital $21,000.
B)debit Cash $15,000; debit Equipment $6,000; credit Accounts Payable $21,000.
C)debit Cash $15,000; debit Equipment $6,000; credit David's Capital $10,000; and credit Daniel's Capital $10,000.
D)debit Cash $15,000; debit Equipment $6,000; credit David's Capital $10,000; and credit Daniel's Capital $11,000.

Question 21

What is the closing entry to allocate net income $24,000 to Eric,Von,and Derek? Their respective capital balances are $20,000,$40,000,and $60,000.Net income is shared in a ratio of their capital balances.

A)Debit Income Summary $24,000; credit Eric,Capital $4,000; credit Von,Capital $8,000; credit Derek,Capital $12,000
B)Debit Income Summary $24,000; credit Eric,Capital $8,000; credit Von,Capital $8,000; credit Derek,Capital $8,000
C)Debit Salary Expense $24,000; credit Salaries Payable $24,000
D)Net income cannot be allocated.

Question 22

If Blake invests $10,000 cash in a partnership,Cash is debited and Blake,Capital is credited,$10,000.

Question 23

The Securities and Exchange Commission Act defines a partnership as "an association of two or more persons to carry on as co-owners of a business for profit."

Question 24

A partnership is defined by the Uniform Partnership Act.

Question 25

Allison and Josh are partners in a business.Allison's capital is $60,000 and Josh's capital is $100,000.Profits for the year are $80,000.They agree to share profits and losses as follows: $\begin{array} { | l | r | r | } \hline & { \text { Allison } } & { \text { Josh } } \\\hline \text { Salaries } & \$ 20,000 & \$ 40,000 \\\hline \text { Interest on capital } & 10 \% & 10 \% \\\hline \text { Remaining profits and losses } & 3 / 5 & 2 / 5 \\\hline\end{array}$ Allison's share of the profits before paying salaries and interest on capital is:

A)$48,000.
B)$22,000.
C)$28,000.
D)$28,400.

Question 26

Discuss the following characteristics of partnerships:
a)Limited life
b)Mutual agency
c)Unlimited liability

Question 27

Salary and interest allowances for partners are:

A)expenses on the income statement.
B)liabilities on the balance sheet.
C)a means of dividing net income or loss between the partners.
D)None of these answers are correct.

Question 28

Prepare the journal entry to record the partners' investment in the company.
Palmer invests $1,000 cash and equipment on his books at $6,500 with accumulated depreciation of $1,500.The fair market value of the equipment is $7,000.Evans is investing $7,000 cash and $700 accounts payable.

Question 29

The agreed-upon ratio for dividing earnings or losses of a partnership is called:

A)interest allowance.
B)salary allowance.
C)profit and loss ratio.
D)profit and loss allowance.

Question 30

The net income earned by the Cooper,Cross,and Crane partnership is $18,000.Their respective average capital balances are $20,000,$20,000,and $40,000.What is the closing entry to allocate the net income if no agreement was made for division of income?

A)Debit Income Summary $18,000; credit Cooper,Capital $6,000; credit Cross,Capital $6,000; credit Crane,Capital $6,000
B)Debit Income Summary $18,000; credit Cooper,Capital $4,500; credit Cross,Capital $4,500; credit Crane,Capital $9,000
C)Cannot allocate net income.
D)Debit Cooper,Capital $6,000; debit Cross,Capital $6,000; debit Crane,Capital $6,000; credit Income Summary $18,000

Question 31

Unlimited liability means that the act of a single partner is binding on all the other partners.

Question 32

Prepare the journal entry to record the partners' investment in the company.
Todd and Dillon combine their two businesses and enter into a partnership.Todd invests $5,000 cash and equipment on his books at $6,500 with accumulated depreciation of $1,500.The fair market value of the equipment is $5,000.Dillon is investing $8,000 cash and $700 accounts payable.

Question 33

Norm and Sam agreed on October 1,2012 to enter into a partnership.Norm contributes $75,000 and Sam contributes $50,000.Journalize their initial investments.

Question 34

What is the closing entry to allocate net income of $48,000 to Sara,Ellen,and Mary? Respective capital balances are $30,000,$40,000,and $30,000.No agreement was made for division of income.

A)Debit Income Summary $48,000; credit Sara,Capital $16,000; credit Ellen,Capital $16,000; credit Mary,Capital $16,000
B)Debit Income Summary $48,000; credit Sara,Capital $14,400; credit Ellen,Capital $19,200; credit Mary,Capital $14,400
C)Debit Salary Expense $48,000; credit Salaries Payable $48,000
D)Net income cannot be allocated.

Question 35

The average capital balances of partners Bridget and Emily are $3,000 and $6,000,respectively.Bridget and Emily work full time in the business.The business earned net income of $12,000 for the period.The partners have agreed to share earnings based upon the percentage of original investment.Bridget's share of the net income is:

A)$4,000.
B)$6,000.
C)$8,000.
D)indeterminable.

Question 36

Mary and Jeff entered into a partnership agreement.However,the agreement did not state how income and losses would be divided.The law states that income will be divided:

A)equally.
B)according to investments.
C)according to abilities.
D)None of these answers are correct.

Question 37

The journal entry to close a net income to the partners is to:

A)debit Income Summary; credit the capital accounts.
B)credit Income Summary; debit the capital accounts.
C)credit Net Loss; debit the capital accounts.
D)debit Net Loss; credit the capital accounts.

Question 38

Discuss (a)the purpose of the articles of partnership,and (b)indicate the items that should be included.

Question 39

Applying the interest allowance method,compute Julie and Jennifer's share of net income if Julie invested $40,000 and Jennifer invested $24,000 at an 8% interest rate,with the remainder to be divided equally.Net income was $10,000.

A)Julie $3,200; Jennifer $1,920
B)Julie $6,250; Jennifer $3,750
C)Julie $5,640; Jennifer $4,360
D)None of these answers is correct.

Question 40

Which method of allocation of profits and losses is based on a percent of initial investment of the partners?

A)Salary allowance
B)Salary expense
C)Profit and loss ratio
D)Interest allowance

Question 41

Applying the interest allowance method,compute Taylor and Timmy's share of net income if Taylor invested $200,000 and Timmy invested $800,000 at a 6% interest rate,with the remainder to be divided equally.Net income was $75,000.

A)Taylor,$15,000; Timmy,$60,000
B)Taylor,$37,500; Timmy,$37,500
C)Taylor,$19,500; Timmy,$55,500
D)None of these answers is correct.

Question 42

Partners Brian,Josh,and Chad have capital balances of $7,000,$3,000,and $90,000,respectively.The losses for the year are $12,000.What will Josh's capital balance be if the three partners share profits and losses at a 2:2:6 ratio?

A)$600 credit balance
B)$1,000 debit balance
C)$2,400 debit balance
D)$4,000 debit balance

Question 43

The profit and loss ratio is required to be equally divided between and among the partners.

Question 44

The basis on which profits and losses are shared is governed by:

A)the SEC.
B)the IRS.
C)the partnership agreement.
D)the partners,and must be shared equally.

Question 45

Before calculating salary and interest allowances,it is necessary to determine whether net income will cover these expenses.

Question 46

Partner B invested inventory using the retail selling price for valuation.This error would cause:

A)the period's net income to be overstated.
B)the period's net income to be understated.
C)the ending assets to be overstated.
D)Both A and C are correct.

Question 47

A loss occurs when net income is not large enough to cover salary and interest allowances for the partners.

Question 48

Applying the ratio based on investment method,compute Taylor and Timmy's share of net income if Taylor invested $200,000 and Timmy invested $800,000.Net income was $75,000.

A)Taylor,$15,000; Timmy,$60,000
B)Taylor,$37,500; Timmy,$37,500
C)Taylor,$19,500; Timmy,$55,500
D)None of these answers is correct.

Question 49

Partners are required to report their share of earnings on their personal tax return.

Question 50

The income/loss agreement was ignored when closing the income summary and all income was distributed evenly.This error would cause:

A)the total owner's equity to be overstated.
B)the total owner's equity to be understated.
C)the total owner's equity to be unaffected.
D)the ending assets to be overstated.

Question 51

An interest allowance is based on a partner's individual initial investment of capital.

Question 52

The two types of allowances that may be considered before the division of profits and losses are:

A)interest and salary allowances.
B)interest and bonus allowances.
C)salary and bonus allowances.
D)bonus and liquidation allowances.

Question 53

Allison and Josh are partners in a business.Allison's capital is $60,000 and Josh's capital is $100,000.Profits for the year are $80,000.They agree to share profits and losses as follows: $\begin{array} { | l | r | r | } \hline &{ \text { Allison } } & { \text { Josh } } \\\hline \text { Salaries } & \$ 20,000 & \$ 40,000 \\\hline \text { Interest on capital } & 10 \% & 10 \% \\\hline \text { Remaining profits and losses } & 3 / 5 & 2 / 5 \\\hline\end{array}$ Josh's share of the profit is:

A)$32,000.
B)$44,000.
C)($8,000).
D)None of the above.

Question 54

Applying the profit and loss ratio method,compute Taylor and Timmy's share of net income if Taylor invested $200,000 and Timmy invested $800,000 and the profit and loss ratio is 3:2.Net income was $75,000.

A)Taylor,$15,000; Timmy,$60,000
B)Taylor,$37,500; Timmy,$37,500
C)Taylor,$45,000; Timmy,$30,000
D)None of these answers is correct.

Question 55

The partnership of Smith and Jones,who have average capital balances of $11,000 and $19,000,respectively,earned $90,000 net income.Under each of the following independent situations,calculate the distribution of the $90,000.
a)No agreement was established.
b)Share based on their average capital balances.

Question 56

The different partners are taxed on:

A)the gross revenue of the partnership.
B)the amount they withdraw from the partnership.
C)the total amount of the net profit of the partnership.
D)the partners' share of the net profit of the partnership.

Question 57

John and Brad have average capital balances of $25,000 and $10,000,respectively.The partners have agreed to allow $20,000 salary allowances.The partners will share income and losses in a 1:2 ratio.How much will each partner's capital account change if net income is $70,000?

Question 58

A profit and loss ratio may not be based on capital contributions.

Question 59

An interest allowance is based on the beginning capital balance of each partner.

Question 60

Kate and Joe formed a partnership in 2012.Joe invested $60,000 and Kate invested $30,000.The partnership had $150,000 in income during 2012.There is no agreement as to how income is divided.Kate and Joe's share is:

A)Kate gets $100,000 and Joe gets $50,000.
B)Kate gets $50,000 and Joe gets $100,000.
C)Kate gets $75,000 and Joe gets $75,000.
D)some other division.

Question 61

When recording a bonus to a new partner,the new partner will:

A)pay more than what the new partner's account will reflect.
B)pay the same as the other partners' capital accounts.
C)pay less than the new partner will receive in the capital account.
D)have no bonus recorded as a bonus cannot be paid to new partners.

Question 62

A statement of partner's equity is the same as a statement of owner's equity except for:

A)there is a capital account for all partners.
B)net income is assigned to one partner.
C)no additional investment by partners are shown on the statement.
D)There is no difference in the statements.

Question 63

Partnerships are subject to federal income tax.

Question 64

Janie and Larry are partners,with beginning capital balances of $60,000 and $40,000 respectively.During the year,Janie withdrew $10,000 and Larry withdrew $15,000.The year's net income of $30,000 was distributed $10,000 to Janie and $20,000 to Larry.Prepare a statement of Partners' equity.

Question 65

Mary sold Jill her equity in the Mary and Jill partnership for $13,000.If both Mary and Jill had a $10,000 capital balance,the entry to record this transaction would be to:

A)debit Cash $13,000; credit Jill,Capital $13,000.
B)debit Mary,Capital $10,000; credit Jill,Capital $10,000.
C)debit Cash $13,000; credit Mary,Capital $13,000.
D)debit Jill,Capital $10,000; credit Mary,Capital $10,000.

Question 66

A cash withdrawal of a partner was recorded the same as paying payroll.This error would cause:

A)the period's net income to be understated.
B)the period's net income to be overstated.
C)the period end assets to be overstated.
D)the period end assets to be understated.

Question 67

When a partnership is worth more than the amounts recorded,an incoming partner may:

A)be required to pay a bonus to the other partners.
B)pay a smaller amount as an initial investment.
C)have to pay the same as other partners.
D)None of these answers are correct.

Question 68

A bonus paid by an incoming partner to the old partners is shared:

A)equally.
B)by the salary method.
C)on the basis of profit and loss ratio.
D)by the interest method.

Question 69

Partners Brian,Josh,and Chad have average capital balances of $7,000,$3,000,and $90,000,respectively.Net income for the year is $12,000.Salary allowances are $14,000 for Brian and $5,000 for Josh.Chad gets 10% interest on his capital balance with the remainder being divided at a 1:1:2 ratio.What is Brian's capital balance after distributing the net income?

A)$17,000 credit balance
B)$3,000 debit balance
C)$10,000 debit balance
D)$7,000 debit balance

Question 70

A bonus is paid to the old partners when:

A)the old partner believes the business is worth less than the amounts recorded in the accounting records.
B)the equity of a partnership is worth more than what is recorded in the accounting records.
C)the company's earnings records are less than expected.
D)None of these answers are correct.

Question 71

When a partner withdraws from a partnership,the company can:

A)audit the accounting records and adjust assets to historical value.
B)credit the account of the partner that withdrew,debit Cash.
C)share any loss or profit from the historical value of assets.
D)None of the above answers is correct.

Question 72

Janie and Larry are partners,with beginning capital balances of $60,000 and $40,000 respectively.During the year,Janie withdrew $10,000 and Larry withdrew $15,000.The year's net income of $30,000 was distributed $10,000 to Janie and $20,000 to Larry.Calculate the ending balances in the capital accounts.

A)Janie,$60,000; Larry,$45,000
B)Janie,$60,000; Larry,$40,000
C)Janie,$80,000; Larry,$75,000
D)Janie,$80,000; Larry,$45,000

Question 73

Katie withdrew from the partnership of Katie,Courtney,and Nathan,and accepted $15,000 cash.Her capital balance was $18,000 and the difference will be shared in a ratio of 2:1.The entry would be to:

A)debit Cash $15,000; credit Nathan,Capital $15,000.
B)debit Nathan,Capital $15,000; credit Cash $15,000.
C)debit Katie,Capital $18,000; credit Cash $15,000; credit Courtney,Capital $2,000; credit Nathan,Capital $1,000.
D)debit Cash $15,000; debit Nathan,Capital $1,000; debit Courtney,Capital $2,000; credit Katie,Capital $18,000.

Question 74

A partnership admits a new partner.The new partner invests $50,000 in the business and receives a credit of $60,000 to his capital account.The difference of $10,000 is called a(n):

A)admission fee.
B)partnership expense.
C)bonus.
D)illegal activity.

Question 75

An investment by a new partner was credited to existing partners' capital balances.This error would cause:

A)the new partner's capital account to be understated.
B)the period end owner's equity to be understated.
C)the period end assets to be overstated.
D)None of these are correct.

Question 76

When a partner withdraws,the partnership may have an audit to adjust the assets to their:

A)historic cost.
B)depreciated value.
C)fair market value.
D)book value.

Question 77

The Brad and Marcia partnership agree to admit Fred with a one-third interest for $5,000.Brad and Marcia's capital balances are $3,000,and $7,000,respectively,and they share profits and losses equally.The entry to admit Brad would include:

A)debit Cash $5,000; credit Fred,Capital $5,000.
B)debit Cash $5,000; credit Brad,Capital $2000; debit Marcia,Capital $2000; credit Fred,Capital $5,000.
C)debit Cash $5,000; credit Brad,Capital $2,500; credit Marsha,Capital $2,500.
D)debit Cash $5,000; debit Brad,Capital $2,500; credit Marcia,Capital $2500; credit Fred,Capital $5,000.

Question 78

Partners Jessica and Jill receive salary allowances of $5,000 and $10,000,respectively.They share income and losses in a 3:1 ratio.If the partnership suffers a $21,000 loss,by how much would Jessica's capital decrease?

A)$15,750
B)$10,750
C)$16,000
D)$22,000

Question 79

James wants to invest cash so that he will have a one-third interest in Thomas and Stanley's company.The capital balances are $2,000 Thomas,$6,000 Stanley.The admission of James would be to:

A)debit Cash $2,666.67; credit James,Capital $2,666.67.
B)debit Cash $5,333.33; credit James,Capital $5,333.33.
C)debit Cash $3,000; credit James,Capital $3,000.
D)debit Cash $4,000; credit James,Capital $4,000.

Question 80

The statement of partners' equity reflects the equity of each partner and summarizes the allocation of net income for the year.