Deck 1: Partnerships

Question 1

3_A partnership agreement may be oral.

Answer 1

True

Question 2

6_A partnership has a continuous life.

Answer 2

False

Question 3

5_A partnership agreement is a contract between the partners,so transactions under the agreement are governed by contract law.

Answer 3

True

Question 4

2_Accounting for a partnership is similar to accounting for a proprietorship.

Question 5

4_Partners can share in net income or loss in any manner they choose.

Question 6

18_Which of the following are items that should be outlined in a partnership agreement?

A) procedures for settling disputes among partners
B) method of sharing profits and losses among the partners
C) procedures for admitting a new partner
D) All of the above items should be outlined in a partnership agreement.

Question 7

9_One of the events that cause a partnership to dissolve is the death of a partner.

Question 8

15_The asset and liability sections on the balance sheet are the same for a proprietorship and a partnership.

Question 9

12_One of the advantages of a partnership is unlimited personal liability.

Question 10

20_Advantages of a partnership include all of the following except:

A) ease of formation
B) limited liability
C) combined resources
D) combined experience and talent

Question 11

8_In a limited liability partnership,all the partners have limited liability for the debts of the partnership.

Question 12

7_The resignation of a partner dissolves the partnership.

Question 13

11_Partnerships have tax advantages over proprietorships.

Question 14

10_A partnership balance sheet will show the ending capital balance for each partner.

Question 15

1_Mutual agency in a partnership means that partnership decisions must be made mutually by both partners.

Question 16

13_One of the disadvantages of a partnership is relationships among partners may be fragile.

Question 17

16_A partnership is an association of ________ who co-own a business for profit.

A) two persons
B) ten persons
C) 300 persons
D) two or more persons

Question 18

17_To make certain that each partner fully understands how a particular partnership will operate in the future,partners should draw up the:

A) articles of liability
B) written partnership agreement
C) articles of incorporation
D) articles of partnership

Question 19

14_For income tax purposes the income of the partnership flows through to become the taxable income of each of the partners.

Question 20

19_All of the following are items that should be outlined in a partnership agreement except:

A) procedures for settling disputes among partners
B) method of sharing profits and losses among the partners
C) the chart of accounts for the partnership
D) procedures for admitting a new partner

Question 21

21_A limited partnership:

A) must have at least two general partners
B) is illegal in most provinces
C) must have at least one general partner
D) pays income taxes

Question 22

List four of the characteristics of a partnership.

Question 23

4_When a partnership is formed,each partner's initial investment should be recorded at their agreed-upon value which is often the current market value of the assets.

Question 24

36_Name a partnership characteristic AND describe the characteristic in your own words.

Question 25

25_The partnership characteristic of co-ownership of property states that:

A) all partnership assets are co-owned by any banks making loans to the partnership
B) general partners co-own all assets, but limited partners do not
C) general partners own a larger percentage of the assets of a partnership than do limited partners
D) any asset a partner invests in the partnership becomes the joint property of all the partners

Question 26

3_When a partner contributes an asset with an outstanding obligation into a partnership,such as a building with a mortgage,the obligation is transferred to the partnership.

Question 27

1_Contributions to a partnership are entered in the books in the same way that a proprietor's assets and liabilities are recorded.

Question 28

34_Most professionals such as doctors,lawyers and public accounting firms in Canada are organized as limited liability partnerships (LLPs).Explain the fundamental concept that governs an LLP.

Question 29

24_The profits of a general partnership:

A) are not taxable to the individual partners
B) pass through the business to the partners
C) are not taxable unless the partnership has over $100,000 in net income
D) cannot exist unless the partnership has a limited partner

Question 30

31_Which of the following statements is TRUE about a limited partnership?

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

Question 31

29_Which of the following BEST describes the term mutual agency?

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

Question 32

23_The characteristic of partnerships that states that every partner can bind the business to a contract within the scope of the partnership's regular business operations is called:

A) limited life
B) mutual agency
C) unlimited liability
D) co-ownership of property

Question 33

26_An individual partner's signing of a contract to buy coffee for a doughnut shop that the partnership owns and operates falls under which characteristic of partnerships?

A) unlimited liability
B) limited life
C) mutual agency
D) co-ownership of property

Question 34

2_A partner cannot invest an asset with an outstanding obligation into a partnership.

Question 35

List four of the items that should be covered in a partnership agreement.

Question 36

28_A partnership income statement includes:

A) a listing of all of the partners' capital account balances
B) a listing of all of the partners' drawing account balances
C) a listing of all revenues and assets
D) a section showing the division of net income to the partners

Question 37

27_A partnership balance sheet includes:

A) a category for assets contributed by each partner
B) a category for liabilities incurred by each partner
C) an ending capital account balance for each partner
D) an ending drawing account balance for each partner

Question 38

30_Each partner in a partnership:

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

Question 39

22_All of the following are characteristics of a general partnership except:

A) mutual agency
B) limited liability
C) limited life
D) co-ownership of property

Question 40

32_What is a partnership? List three advantages and three disadvantages of the partnership form of business organization.

Question 41

9_Brown invests cash of $20,000 and a building with a cost of $350,000 and accumulated amortization to date of $195,000 in the Brown and Winter Partnership.The building has a current market value of $325,000.A mortgage payable of $105,000 is outstanding on the building and will be assumed by the partnership.Brown's capital account would be credited for:

A) $165,000
B) $175,000
C) $240,000
D) $70,000

Question 42

Canfield invests cash of $20,000 and inventory with a cost of $60,000 and a current value of $65,000 in the Canfield and Roose Partnership.In addition,Canfield invests land with a cost of $75,000,a current market value of $170,000,and a $70,000 mortgage on the property assumed by the partnership.Roose invests equipment with a cost of $100,000 and accumulated amortization of $40,000.Roose's equipment has a current market value of $100,000.Roose also invests inventory with a current market value of $30,000.

-What is the balance in the capital account of Roose?

A) $155,000
B) $185,000
C) $130,000
D) $145,000

Question 43

Mary Cox entered into a partnership and transferred assets and liabilities from her prior business over to the partnership comprised of the following: $$\begin{array} { | l | l | r | } \hline \text { Cash } & & \$ 10,000 \\\hline \text { Notes Payable } & & \$ 2,000 \\\hline \text { Inventory } & \text { Original cost } & \$ 12,000 \\\hline & \text { Current market value } & \$ 8,000 \\\hline\end{array}$$ On the partnership books,the assets and liabilities will be recorded at a combined net value of:

A) $22,000.
B) $20,000.
C) $32,000.
D) $16,000.

Question 44

Table 12-1
Hanna contributes $55,000 cash, land that she bought for $195,000, and a building that cost her $140,000 and has been amortized $70,000, to the newly formed partnership of H & B Company. The current market value of the building is $200,000 and has an outstanding mortgage of $100,000. The current market value of the land is $390,000.
Barbara contributes $50,500 cash, equipment with a current market value of $80,000 with an outstanding note payable of $15,000, and an automobile with a current market value of $30,000. Barbara originally paid $60,000 for the equipment, which has been amortized $20,000. The partners have agreed to share profits and losses equally.
19_Referring to Table 12-1,immediately after the investments by Hanna and Barbara,the balance sheet of H & B Company shows total assets of:

A) $620,500
B) $505,500
C) $690,500
D) $580,500

Question 45

Table 12-1
Hanna contributes $55,000 cash, land that she bought for $195,000, and a building that cost her $140,000 and has been amortized $70,000, to the newly formed partnership of H & B Company. The current market value of the building is $200,000 and has an outstanding mortgage of $100,000. The current market value of the land is $390,000.
Barbara contributes $50,500 cash, equipment with a current market value of $80,000 with an outstanding note payable of $15,000, and an automobile with a current market value of $30,000. Barbara originally paid $60,000 for the equipment, which has been amortized $20,000. The partners have agreed to share profits and losses equally.
17_Referring to Table 12-1,the entry to record the investment by Barbara includes a credit to her capital account for:

A) $195,500
B) $145,500
C) $180,500
D) $175,500

Question 46

10_Equipment with a cost of $100,000 and accumulated amortization of $30,000 is contributed to a new partnership by Barnes.The current market value of the equipment is $95,000.The replacement value of the equipment is $125,000.The equipment would be recorded on the partnership books at:

A) $70,000
B) $65,000
C) $125,000
D) $95,000

Question 47

5_The partnership records receipt of the partners' initial investments at their current market values.

Question 48

Table 12-1
Hanna contributes $55,000 cash, land that she bought for $195,000, and a building that cost her $140,000 and has been amortized $70,000, to the newly formed partnership of H & B Company. The current market value of the building is $200,000 and has an outstanding mortgage of $100,000. The current market value of the land is $390,000.
Barbara contributes $50,500 cash, equipment with a current market value of $80,000 with an outstanding note payable of $15,000, and an automobile with a current market value of $30,000. Barbara originally paid $60,000 for the equipment, which has been amortized $20,000. The partners have agreed to share profits and losses equally.
15_Referring to Table 12-1,the entry to record the investment by Barbara includes a debit to:

A) equipment for $65,0000
B) equipment for $80,000
C) cash for $55,000
D) automobile $40,000

Question 49

6_Often partners hire an independent firm to appraise their assets and liabilities at current market value.

Question 50

8_Investments of assets into a partnership are recorded at their:

A) original cost
B) book value
C) current market value
D) original cost plus a percentage adjustment to account for inflation

Question 51

7_Lucy Roberts and Vera Miles decide to form a partnership.Lucy invests cash of $5,000 while Vera invests inventory valued at $7,000 and cash of $2,000.The balance in Vera's capital account after formation is:

A) $9,000
B) $7,000
C) $5,000
D) $14,000

Question 52

Jill and Sue decide to form the JS Partnership.On February 1,2017,they combine their assets with the following current market values and book values:
$\begin{array}{c}&&&&&&\text {Jill's assets}&&&\text {Sue's assets}\\\end{array}\\\begin{array}{llll}&\text { Book } & \text { Market } & \text { Book } & \text { Market } \\&\text { value } & \text { value } & \text { value } & \text { value }\\\text { Cash }&\$40,000&\$40,000&\$50,000&\$50,000\end{array}$

Net accounts
$\begin{array}{lllll}\text { receivable } & 39,500 & 37,000 & 28,000 & 27,000 \\\text { Inventory } & 69,000 & 75,000 & 55,000 & 72,000 \\\text { Land } & 50,000 & 85,000 & 75,000 & 90,000 \\\text { Equipment } & 80,000 & 70,000 & 90,000 & 75,000\end{array}$ Accumulated
$$\begin{array} { l l l l l } \text { amortization } & 25,000 & - - - & 30,000 & - - - \\\text { Accounts payable } & 28,000 & 28,000 & - - - & - - -\\\text { Notes payable } & - - - - & - - - & 10,000 & 10,000\end{array}$$ Journalize the entries on February 1,2017,to record the partners' initial investments.

Question 53

Jill and Sue decide to form the JS Partnership.On February 1,2014,they combine their assets except for the land with the following current market values and book values:
$\begin{array}{c}&&&&&&\text {Jill's assets}&&&\text {Sue's assets}\\\end{array}\\\begin{array}{llll}&\text { Book } & \text { Market } & \text { Book } & \text { Market } \\&\text { value } & \text { value } & \text { value } & \text { value }\\\text { Cash }&\$40,000&\$40,000&\$50,000&\$50,000\end{array}$ Net accounts
$\begin{array}{lllll}\text { receivable } & 39,500 & 37,000 & 28,000 & 27,000 \\\text { Inventory } & 69,000 & 75,000 & 55,000 & 72,000 \\\text { Land } & 50,000 & 85,000 & 75,000 & 90,000 \\\text { Equipment } & 80,000 & 70,000 & 90,000 & 75,000\end{array}$ Accumulated
$$\begin{array} { l l l l l } \text { amortization } & 25,000 & - - - & 30,000 & - - - \\\text { Accounts payable } & 28,000 & 28,000 & - - - & - - -\\\text { Notes payable } & - - - - & - - - & 10,000 & 10,000\end{array}$$ Journalize the entries on February 1,2014,to record the partners' initial investments.

Question 54

Table 12-1
Hanna contributes $55,000 cash, land that she bought for $195,000, and a building that cost her $140,000 and has been amortized $70,000, to the newly formed partnership of H & B Company. The current market value of the building is $200,000 and has an outstanding mortgage of $100,000. The current market value of the land is $390,000.
Barbara contributes $50,500 cash, equipment with a current market value of $80,000 with an outstanding note payable of $15,000, and an automobile with a current market value of $30,000. Barbara originally paid $60,000 for the equipment, which has been amortized $20,000. The partners have agreed to share profits and losses equally.
18_Referring to Table 12-1,the entry to record the investment by Hanna includes a credit to her capital account for:

A) $545,000
B) $390,000
C) $485,000
D) $500,000

Question 55

Jack and Will decide to form the JW Partnership.On January 1,2017,they combine their assets with the following current market values and book values:
$\begin{array}{c}&&&&&&\text {Jack's assets}&&&\text {Will's assets}\\\end{array}\\\begin{array}{llll}&\text { Book } & \text { Market } & \text { Book } & \text { Market } \\&\text { value } & \text { value } & \text { value } & \text { value }\\\text { Cash }&\$100,000&\$100,000&\$95,000&\$95,000\end{array}$
Net accounts
$\begin{array}{lllll}\text { receivable } & 39,000 & 37,000 & 28,000 & 23,000 \\\text { Inventory } & 60,000 & 75,000 & 55,000 & 72,000 \\\text { Land } & 50,000 & 80,000 & 75,000 & 90,000 \\\text { Buildings } & 80,000 & 70,000 & 90,000 & 75,000\end{array}$ Accumulated
$\begin{array}{cllll}\text { amortization } & 25,000 & \cdots & 30,000 & \cdots \\\text { Accounts payable } & 18,000 & 18,000 & 25,000 & 25,000\end{array}$ Journalize the entries on January 1,2017,to record the partners' initial investments.

Question 56

Canfield invests cash of $20,000 and inventory with a cost of $60,000 and a current value of $65,000 in the Canfield and Roose Partnership.In addition,Canfield invests land with a cost of $75,000,a current market value of $170,000,and a $70,000 mortgage on the property assumed by the partnership.Roose invests equipment with a cost of $100,000 and accumulated amortization of $40,000.Roose's equipment has a current market value of $100,000.Roose also invests inventory with a current market value of $30,000.

-How much cash must be invested by Roose so that the two partners have equal balances in their capital accounts?

A) $25,000
B) $55,000
C) $15,000
D) $35,000

Question 57

Canfield invests cash of $20,000 and inventory with a cost of $60,000 and a current value of $65,000 in the Canfield and Roose Partnership.In addition,Canfield invests land with a cost of $75,000,a current market value of $170,000,and a $70,000 mortgage on the property assumed by the partnership.Roose invests equipment with a cost of $100,000 and accumulated amortization of $40,000.Roose's equipment has a current market value of $100,000.Roose also invests inventory with a current market value of $30,000.

-What is the balance in the capital account of Canfield?

A) $155,000
B) $85,000
C) $185,000
D) $180,000

Question 58

Table 12-1
Hanna contributes $55,000 cash, land that she bought for $195,000, and a building that cost her $140,000 and has been amortized $70,000, to the newly formed partnership of H & B Company. The current market value of the building is $200,000 and has an outstanding mortgage of $100,000. The current market value of the land is $390,000.
Barbara contributes $50,500 cash, equipment with a current market value of $80,000 with an outstanding note payable of $15,000, and an automobile with a current market value of $30,000. Barbara originally paid $60,000 for the equipment, which has been amortized $20,000. The partners have agreed to share profits and losses equally.
14_Referring to Table 12-1,the entry to record the investment by Hanna includes a debit to:

A) building for $200,000
B) land for $195,000
C) building for $140,000
D) cash for $50,500

Question 59

Carl Alvarez joined a partnership and contributed the following assets: $$\begin{array} { | l | l | r | r | } \hline \text { Cash } & & & \$ 5,000 \\\hline & & & \\\hline \text { Equipment } & \text { Original cost: } & & \$ 42,000 \\\hline & \text { Accumulated amortization: } & & \$ 20,000 \\\hline & \text { Current market value: } & \$ 30,000 & \\\hline & & & \\\hline \text { Land } & \text { Original cost: } & & \$ 110,000 \\\hline & \text { Current market value: } & \$ 200,000 & \\\hline\end{array}$$ On the partnership books,the assets will be recorded at a total value of:

A) $137,000.
B) $157,000.
C) $235,000.
D) $147,000.

Question 60

Table 12-1
Hanna contributes $55,000 cash, land that she bought for $195,000, and a building that cost her $140,000 and has been amortized $70,000, to the newly formed partnership of H & B Company. The current market value of the building is $200,000 and has an outstanding mortgage of $100,000. The current market value of the land is $390,000.
Barbara contributes $50,500 cash, equipment with a current market value of $80,000 with an outstanding note payable of $15,000, and an automobile with a current market value of $30,000. Barbara originally paid $60,000 for the equipment, which has been amortized $20,000. The partners have agreed to share profits and losses equally.
16_Referring to Table 12-1,immediately after the investments by Hanna and Barbara,the balance sheet of H & B Company shows total liabilities of:

A) $100,000
B) $15,000
C) $115,000
D) $305,500

Question 61

3_It is not possible to share partnership income purely on the basis of a partner's investments.

Question 62

Jack and Will formed the JW Partnership on January 1,2013,by combining the separate assets of their respective proprietorships.Information relating to their assets and liabilities are as follows:
$\begin{array}{c}&&&&&&\text {Jack's assets}&&&\text {Will's assets}\\\end{array}\\\begin{array}{llll}&\text { Book } & \text { Market } & \text { Book } & \text { Market } \\&\text { value } & \text { value } & \text { value } & \text { value }\\\text { Cash }&\$100,000&\$100,000&\$95,000&\$95,000\end{array}$
Net accounts
$\begin{array}{lllll}\text { receivable } & 39,000 & 37,000 & 28,000 & 36,000 \\\text { Inventory } & 60,000 & 75,000 & 55,000 & 66,000 \\\text { Land } & 50,000 & 80,000 & 75,000 & 82,000 \\\text { Buildings } & 80,000 & 70,000 & 90,000 & 90,000\end{array}$ Accumulated
$\begin{array}{cllll}\text { amortization } & 25,000 & \cdots & 30,000 & \cdots \\\text { Accounts payable } & 18,000 & 18,000 & 25,000 & 25,000\end{array}$ Prepare the balance sheet for JW Partnership on January 1,2013,immediately after the partnership entries are prepared.

Question 63

7_Partnership profits and losses may be allocated based on capital investments and/or on service.

Question 64

4_The balance in the partner's capital account consists of the partner's initial investment less the partner's share of partnership net income plus the partner's withdrawals.

Question 65

Tracy and Jack formed the TJ Partnership on March 1,2014 by combining the separate assets of their respective proprietorships.Information relating to their assets and liabilities are as follows:
$\begin{array}{c}&&&&&&\text {Tracy's assets}&&&\text {Jack's assets}\\\end{array}\\\begin{array}{llll}&\text { Book } & \text { Market } & \text { Book } & \text { Market } \\&\text { value } & \text { value } & \text { value } & \text { value }\\\text { Cash }&\$10,000&\$10,000&\$85,000&\$85,000\end{array}$
Net accounts
$\begin{array}{lllll}\text { receivable } & 39,000 & 37,000 & 28,000 & 23,000 \\\text { Inventory } & 60,000 & 75,000 & 55,000 & 72,000 \\\text { Land } & 50,000 & 90,000 & 75,000 & 90,000 \\\text { Buildings } & 80,000 & 70,000 & 90,000 & 75,000\end{array}$ Accumulated
$\begin{array}{cllll}\text { amortization } & 25,000 & \cdots & 30,000 & \cdots \\\text { Accounts payable } & 18,000 & 18,000 & 25,000 & 25,000\end{array}$ Prepare the balance sheet for TJ Partnership on March 1,2014,immediately after the partnership entries are prepared.

Question 66

10_The balance in the partner's capital account consists of the partner's initial investment plus the partner's share of partnership net income minus the partner's withdrawals.

Question 67

Hugh and Liz formed a partnership with capital contributions of $80,000 and $120,000,respectively.Their partnership agreement called for 1_Hugh to receive $10,000 for service,2_each partner to receive 10% of their initial capital contributions,and 3_the remaining income or loss to be divided equally.If net income for the current year is $70,000,what amount is credited to Hugh's capital account?

A) $27,000
B) $43,000
C) $38,000
D) $18,750

Question 68

9_When a partner receives an allocation for service as part of their share of the income the partner has status both as a partner and as an employee.

Question 69

Hugh and Liz formed a partnership with capital contributions of $80,000 and $120,000,respectively.Their partnership agreement called for 1_Hugh to receive a $20,000 for service,2_each partner to receive 10% of their initial capital contributions,and 3_the remaining income or loss to be divided equally.If net loss for the current year is $44,000,what amount is debited to Hugh's capital account?

A) $30,000
B) $14,000
C) $22,000
D) $43,000

Question 70

12_John and Mary share profits and losses in a 6:9 ratio,respectively.Mary's share of a $60,000 profit would be $24,000.

Question 71

5_Partnership agreements typically do not allow partners to withdraw assets from the business.

Question 72

13_Assume the partnership agreement specifies net income is to be divided as follows: $30,000 to A and $40,000 to B for service with any remaining profit or loss divided equally between the partners.If net income for the current year is $85,000,A's distributive share of net income would be:

A) $27,500
B) $37,500
C) $30,000
D) $40,000

Question 73

1_If the partnership agreement specifies a method for allocating profits but not losses,then losses are shared in the same proportion as profits.

Question 74

6_It is not possible for the withdrawals account of a partner to be nil before closing entries.

Question 75

On June 30,William Tellman,Wendy Carlos,and David Wu started a partnership.Their investments were as follows:
W. Tellman: Land valued at $\$ 200,000$
W. Carlos: $\quad$ Cash of $180,000
D. Wu: $\quad$ Inventory valued at $\$ 240,000$ , Accounts payable of $\$ 50,000$ Please use the format below to prepare a balance sheet at June 30.
$$\begin{array} { | l | l | l | l | l | } \hline \text { Assets } & & & \text { Liabilities } & \\\hline & & & & \\\hline & & & & \\\hline & & & \text { Owners' Equity } & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline & & & & \\\hline\end{array}$$

Question 76

2_It is not possible to share partnership income purely on the basis of a partner's service to the partnership.

Question 77

15_Jen,Brad,and George formed a partnership with Jen contributing $50,000,Brad contributing $60,000 and George investing $90,000.Their partnership agreement called for the net income division to be based on the ratio of capital investments.If the partnership net income for the first year of operations was $75,000,what amount of net income would be credited to Jen's capital account?

A) $18,750
B) $22,500
C) $37,500
D) $43,500

Question 78

8_Unless the partnership agreement specifically indicates an income ratio,partnership net income or loss is not allocated to the partners.

Question 79

11_The journal entry to close a partner's withdrawals account involves a debit to the partner's capital account.

Question 80

14_Assume the partnership agreement specifies net income is to be divided as follows: $30,000 to A and $40,000 to B for service with any remaining profit or loss divided equally between the partners.If net loss for the current year is $85,000,A's distributive share of net loss would be:

A) $37,500
B) $47,500
C) $30,000
D) $40,000