Deck 12: Partnerships

Question 1

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

Answer 1

True

Question 2

Which of the following is a characteristic of a partnership?

A) Partnerships pay corporate income taxes.
B) Partnerships are listed on a stock exchange.
C) Partnerships are organized as corporations.
D) Partners have co-ownership of the partnership's assets.

Answer 2

D

Question 3

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

Answer 3

True

Question 4

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 5

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

Question 6

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

Question 7

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

Question 8

In a general partnership,if one partner cannot pay his or her part of the debts,the other partner or partners must pay with their personal assets.

Question 9

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

Question 10

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

Question 11

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 12

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

Question 13

If elected,an S corporation pays no corporate income tax.

Question 14

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) a partner's withdrawal of cash from the partnership

Question 15

A partnership is a ________.

A) firm listed on a stock exchange, in which no owner owns a controlling majority of equity
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 organization's liabilities
D) private firm in which all owners have equal ownership and limited liability in the event of a bankruptcy

Question 16

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

Question 17

Which of the following is specified in the articles of partnership?

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

Question 18

Mutual agency means that any partner can legally bind the other partners and the partnership to business contracts within the scope of the business's regular operations.

Question 19

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

Question 20

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

Question 21

Which of the following types of business organizations pay business income taxes?

A) S Corporations
B) sole proprietorships
C) general partnerships
D) C Corporations

Question 22

In a partnership,mutual agency means that ________.

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

Question 23

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 24

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 25

Which of the following is an advantage of a partnership?

A) Partnerships are less expensive to organize than corporations.
B) The owners of a partnership are generally exempted from personal income taxes.
C) The owners who contribute an asset to the partnership retain absolute claim on the asset.
D) Mutual agency creates personal obligations for each partner.

Question 26

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 the case of the liquidation of a partnership, the partners must be paid based on the profit sharing ratio of the partnership.

Question 27

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 held responsible for an individual partners' actions?

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

Question 28

Which of the following is a disadvantage of partnership firms?

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

Question 29

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 30

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 majority shareholder and is not 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 31

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 32

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 33

In comparison to a corporation,the owners of a general partnership ________.

A) have limited claim on the profits generated 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 34

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 unlimited 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 35

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 36

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

A) general partnerships
B) S Corporations
C) C Corporations
D) limited liability companies

Question 37

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

A) A limited liability company is not obligated 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 38

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 subject to double taxation.
C) Each partner's liability is limited to their contributed capital.
D) When a general partner contributes a particular asset to the firm, he or she is considered the sole owner of the asset.

Question 39

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 cannot 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 are double-taxed.
D) Unlike a partnership, the members of a limited liability company do not need to file articles of organization with the state.

Question 40

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 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 41

Sasha and Michelle form a partnership.Sasha contributes $16,000 cash and merchandise inventory with a current market value of $3000.While journalizing this transaction ________.

A) Merchandise Inventory will be credited for $3000
B) Merchandise Inventory will be debited for $3000
C) Merchandise Inventory will be credited for $13,000
D) Merchandise Inventory will be debited for $13,000

Question 42

Tim and Michelle have decided to form a partnership with a 60/40 partnership interest ratio.Tim contributes $7500 cash and merchandise inventory with a market value of $1500.While journalizing this transaction ________.

A) Tim, Capital will be debited for $9000
B) Tim, Capital will be credited for $9000
C) Tim, Capital will be credited for $6000 and Michelle, Capital will be credited for $4500
D) Tim, Capital will be debited for $6000 and Michelle, Capital will be debited for $4500

Question 43

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 44

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

Question 45

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 46

The balance sheet of Incrad Clothes,LLC,as of December 31,2017 is presented below. $$\begin{array} { | l | r | l | r | } \hline \text { Assets } & & \text { Liabilities } & \\\hline \text { Cash } & \$ 15,000 & \text { Accounts payable } & \$ 12,000 \\\hline \text { Merchandise inventory } & 56,000 & \text { Bank Loan } & 25,000 \\\hline \text { Furniture } & 12,000 & \text { Partner's Equity } & \\\hline \text { Computer } & 15,000 & \text { Chad, Capital } & 45,000 \\\hline \text { Other assets } & \underline { 22,000 } & \text { Brad, Capital } & \underline { 38,000 } \\\hline& & \text { Total Liabilities and } & \\ { \text { Total Assets } } & \$ 120,000& \text { Partner's Equity } & \$ 120,000 \\\hline \end{array}$$ Which of the following statements is TRUE regarding Incrad's balance sheet?

A) The computer was purchased at a cost less than $15,000.
B) The bank loan of $25,000 should be considered 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 47

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

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

Question 48

In their business partnership,George has an ownership interest of 55% and Ben has an ownership interest of 45%.In the current year,they purchase equipment for $9900.In order to finance the equipment purchase,George makes a cash contribution of $7400 and Ben makes a cash contribution of $2500 to the partnership.Based on the information provided,which of the following is TRUE regarding the partnership balance sheet?

A) Both George, Capital and Ben, Capital will increase by $9900.
B) George, Capital will increase by $7400 and Ben, Capital will increase by $2500.
C) George, Capital will increase by $9900 and Ben, Capital will remain unchanged.
D) George, Capital will increase by $5445 and Ben, Capital will increase by $4455.

Question 49

Steve owns 64% and Mark owns 36% of a partnership business.They purchase equipment with a suggested value of $9600.The current market value of the equipment at the time of purchase was $9100.At the time of the balance sheet preparation,depreciation of $160 was recorded.Based on the information provided,which of the following is TRUE of the partnership?

A) The Equipment account will be debited at $9100 on the date of purchase.
B) The Equipment account will be debited at $8940 on the date of purchase.
C) The Equipment account will be debited at $9600 on the date of purchase.
D) The Equipment account will be debited at $9440 on the date of purchase.

Question 50

Edwin and Darren have decided to form a partnership.Edwin contributes $80,000 cash and merchandise inventory with a current market value of $17,000.Darren contributes $2400 cash and office furniture with a current market value of $3200.When journalizing these transactions ________.

A) Office Furniture will be debited for $1070
B) Office Furniture will be credited for $3200
C) Office Furniture will be debited for $3200
D) Office Furniture will be credited for $1070

Question 51

A partnership records the partners' contributions at their ________.

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

Question 52

Rodriguez and Ying start a partnership on July 1,2019.Rodriguez contributes $4100 cash,furniture with a current market value of $55,000,and computer equipment.The computer equipment originally cost $48,000 in 2017 with recorded accumulated depreciation of $28,000.The current market value of the computer equipment is $17,000.At what value should the computer equipment be recorded in the accounting records of the partnership?

A) $48,000
B) $17,000
C) $20,000
D) $28,000

Question 53

Rodriguez and Ying start a partnership on July 1,2019.Rodriguez contributes $4100 cash,furniture with a current market value of $47,000,accounts payable with a current market value of $16,000 and equipment with a current market value of $23,000.Which of the following is the correct journal entry to record Rodriguez's partnership investment?

A) $$\begin{array} { | l | r | l | } \hline \text { Cash } & 4100 & \\\hline \text { Furniture } & 47,000 & \\\hline \text { Equipment } & 23,000 & \\\hline \text { Accounts Payable } & 16,000 & \\\hline \text { Rodriguez, Capital } & & 90,100 \\\hline\end{array}$$
B) $$\begin{array} { | l | r | l | } \hline \text { Cash } & 4100 & \\\hline \text { Furniture } & 47,000 & \\\hline \text { Equipment } & 23,000 & \\\hline \text { Accounts Payable } & & 16,000 \\\hline \text { Rodriguez, Capital } & & 58,100 \\\hline\end{array}$$
C) $$\begin{array} { | c | r | r | } \hline \text { Cash } & 4100 & \\\hline \text { Furniture } & 47,000 & \\\hline \text { Equipment } & & 23,000 \\\hline \text { Accounts Payable } & & 16,000 \\\hline \text { Rodriguez, Capital } & & 12,100 \\\hline\end{array}$$
D) $$\begin{array} { | l | r | r | } \hline \text { Accounts Payable } & 16,000 & \\\hline \text { Rodriguez, Capital } & 58,100 & \\\hline \text { Cash } & & 4100 \\\hline \text { Furniture } & & 47,000 \\\hline \text { Equipment } & & 23,000 \\\hline\end{array}$$

Question 54

Andy and Ian formed a partnership on April 1,2019.Andy contributes equipment to the business that originally cost $82,000 and on which accumulated depreciation of $16,000 has been recorded.The current market value of the equipment is $74,000.The value of the equipment recorded in the partnership journal is ________.

A) $66,000
B) $74,000
C) $58,000
D) $82,000

Question 55

Jack holds an ownership interest of 63% and Teresa holds an ownership interest of 37% in the J and T Partnership.This year,in order to further develop the business,Jack contributes an additional $6800 and Teresa contributes an additional $3200 to the partnership.Which of the following is TRUE of this scenario?

A) Either the total contribution of $10,000 or the contribution in relationship to the ownership interest ratio will be recorded.
B) Only the total contribution of $10,000 will be recorded.
C) Individual contributions of $6800 by Jack and $3200 by Teresa will be recorded.
D) 63% of Jack's contribution and 37% of Teresa's contribution will be recorded.

Question 56

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

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

Question 57

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

Question 58

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

Question 59

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

Question 60

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

Question 61

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

Question 62

Dana and Emile allocate 2/3 of their partnership's profits and losses to Dana and 1/3 to Emile.The net income of the firm is $40,000.The journal entry to close the Income Summary will include a ________.(Do not round any intermediate calculations.)

A) credit to Income Summary for $26,667
B) debit to Dana, Capital for $13,333
C) credit to Emile, Capital for $26,667
D) debit to Income Summary for $40,000

Question 63

Which of the following statements is TRUE of partnerships?

A) If the partners have no partnership agreement specifying how to divide profits and losses, then they share profits and losses 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 64

David,Chris and John formed a partnership on July 31,2019.They decided to share profits equally,but inserted a clause in the partnership agreement where any losses would be allocated in the ratio of 5:2:3,respectively.For the year ended December 31,2019,the firm earned a net income of $50,000.However,for the year ended December 31,2020,the firm incurred a loss of $60,000.Assuming that John had an initial capital contribution of $43,000 and made no withdrawals,what is the balance of John's Capital account as of December 31,2020? (Assume that none of the partners made any further contributions to their capital accounts.Do not round any percentage calculations.Round all monetary calculations to the nearest dollar.)

A) $41,667
B) $43,000
C) $59,667
D) $44,333

Question 65

Andre,Beau,and Caroline share profits and losses of their partnership in a 3:3:7 ratio respectively.If the net income is $900,000,calculate Caroline's share of the profits.(Do not round any intermediate calculations.)

A) $207,692
B) $484,615
C) $161,538
D) $69,231

Question 66

Adam,Bill,and Charlie are partners.The profit and loss sharing rule between them is 4:6:1,with Bill receiving the largest share and Charlie receiving the smallest.The partnership incurs a net loss of $72,000.While closing the Income Summary ________.(Do not round any intermediate calculations.)

A) Income Summary will be debited for $72,000
B) Adam, Capital will be debited for $26,182
C) Adam, Capital will be credited for $39,273
D) Charlie, Capital will be credited for $39,273

Question 67

Steve and Roger allocate 2/3 of their partnership's profits and losses to Steve and 1/3 to Roger.If the net income of the firm is $30,000,calculate Roger's share of net income.(Do not round any intermediate calculations.)

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

Question 68

Farrell and Jimmy enter into a partnership agreement on May 1,2018.Farrell contributes $60,000 and Jimmy contributes $120,000 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 31,2018 is $70,000.Which of the following is the correct journal entry to record the allocation of profit? (Do not round any intermediate calculations.Round your final answers to the nearest dollar.)

A) $$\begin{array} { | c | c | c | } \hline \text { Farrell, Capital } & 46,667 & \\\hline \text { Jimmy, Capital } & & 46,667 \\\hline\end{array}$$
B) $$\begin{array} { | c | c | c | } \hline \text { Income Summary } & 70,000 & \\\hline \text { Farrell, Capital } & & 23,333 \\\hline \text { Jimmy, Capital } & & 46,667 \\\hline\end{array}$$
C) $$\begin{array} { | l | l | l | } \hline \text { Farrell, Capital } & 23,333 & \\\hline \text { Jimmy, Capital } & 46,667 & \\\hline \text { Income Summary } & & 70,000 \\\hline\end{array}$$
D) $$\begin{array} { | l | l | l | } \hline \text { Income Summary } & 23,334 & \\\hline \text { Farrell, Capital } & 23,333 & \\\hline \text { Jimmy, Capital } & & 46,667 \\\hline\end{array}$$

Question 69

Bill and Bob share profits of their partnership in the ratio of 6:1 respectively.If the net income of the firm is $29,000,calculate Bill's share of net income.(Do not round any intermediate calculations.)

A) $20,714
B) $4143
C) $29,000
D) $24,857

Question 70

Adam,Bill,and Charlie are partners.The profit and loss sharing rule between them is 2:5:3,with Bill getting the largest share and Adam receiving the smallest.The partnership incurs a net loss of $21,000.While closing the Income Summary ________.(Do not round any intermediate calculations.)

A) Income Summary will be credited for $6300
B) Adam, Capital will be debited for $6300
C) Adam, Capital will be credited for $6300
D) Charlie, Capital will be debited for $6300

Question 71

Albert,Billy,and Cathy share profits and losses of their partnership as 1:4:3,respectively.If the net income is $30,000,calculate Albert's share of the profits.(Do not round any intermediate calculations.)

A) $7500
B) $11,250
C) $15,000
D) $3750

Question 72

Farrell and Jimmy enter into a partnership agreement on May 1,2018.Farrell contributes $30,000 and Jimmy contributes $140,000 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 31,2018 is $40,000.Which of the following amounts should be credited to Jimmy's capital account? (Do not round any intermediate calculations.Round your final answers to the nearest dollar.)

A) $70,000
B) $40,000
C) $32,941
D) $7059

Question 73

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

Question 74

Albert,Billy,and Cathy share profits and losses of their partnership in a 1:6:3,ratio respectively.If the net income is $60,000,calculate Billy's share of the profits.(Do not round any intermediate calculations.)

A) $12,000
B) $18,000
C) $36,000
D) $6000

Question 75

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

Question 76

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

Question 77

Alex,Brad,and Carl are partners.The profit sharing rule between them is 4:3:2 in alphabetical order.The partnership incurs a net loss of $120,000.The journal entry to close Income Summary will include a ________.(Do not round any intermediate calculations.)

A) debit to Income Summary account for $120,000
B) debit to Alex, Capital account for $53,333
C) credit to Alex, Capital account for $53,333
D) credit to Carl, Capital account for $26,667

Question 78

Keith and Jim formed a partnership,with the partners sharing profits and losses equally.The partnership incurs a net loss of $5000 for the year.The entry to close the net loss will ________.

A) debit Income Summary by $5000
B) decrease Keith, Capital by $2500
C) increase Jim, Capital by $2500
D) decrease Jim, Capital by $5000

Question 79

Felix and Ian allocate 2/5 of their partnership's profits and losses to Felix and 3/5 to Ian.The net income of the firm is $20,000.The journal entry to close the Income Summary will include ________.

A) credit to Ian, Capital for $12,000
B) debit to Felix, Capital for $12,000
C) debit to Felix, Capital for $8000
D) credit to Income Summary for $20,000

Question 80

Bob and Bill allocate 2/3 of their partnership's profits and losses to Bob and 1/3 to Bill.The net income of the firm is $20,000.The journal entry to close the Income Summary will include ________.(Do not round any intermediate calculations.)

A) credit to Income Summary for $13,333
B) debit to Bob, Capital for $6667
C) credit to Bob, Capital for $13,333
D) credit to Income Summary for $20,000