Deck 12: Accounting for Partnerships

Question 1

One of the benefits of forming a partnership is limited liability.

Answer 1

False

Question 2

Partners' Withdrawals accounts have normal debit balances.

Answer 2

True

Question 3

Each partner has a separate Capital,Withdrawals,and Income or Loss account.

Answer 3

False

Question 4

Liabilities related to assets invested in a partnership by a new partner can be transferred to the partnership.

Question 5

A partner in a landscaping business can bind the partnership to a contract for purchasing furniture and clothing.

Question 6

A partnership agreement should include the method of distributing income and loss.

Question 7

There is no income tax imposed on a partnership.

Question 8

As long as the action is within the scope of the partnership,any partner can bind the partnership.

Question 9

Accounting for a partnership comes closer to accounting for a corporation than to accounting for a sole proprietorship.

Question 10

A partnership is an accounting entity separate and apart from its owners.

Question 11

When individuals invest property in a partnership,the property becomes an asset of the partnership and is owned jointly by the partners.

Question 12

If the partnership agreement does not describe the method of income and loss distribution,the partners must share income and losses equally.

Question 13

When a new partner is admitted,it will dissolve the old partnership.

Question 14

Under the partnership form of business,it may be difficult to raise large amounts of capital.

Question 15

A partnership agreement need not be in writing.

Question 16

A partnership is relatively easy to form,but is very complex to dissolve.

Question 17

Each partner is personally liable only for his/her share of the debts of the partnership.

Question 18

When a partner invests assets in a partnership,the assets are recorded at their fair market value on the date they are transferred to the partnership.

Question 19

An advantage of the partnership form of business is that the life of the partnership is limited.

Question 20

An informational tax return must be filed for a partnership.

Question 21

Partner X purchases Partner Y's $25,000 interest from Partner Y for $30,000.The entry to record the transaction is for $30,000.

Question 22

When a newly admitted partner pays a bonus to the existing partners,the new partner's capital account is credited.

Question 23

There is an impact on the income statement (gain or loss)of a partnership when a partner withdraws from the business.

Question 24

When salary and interest allocations exceed net income,a net loss has occurred.

Question 25

When a partner withdraws from a partnership,an audit might be performed and the assets reappraised.

Question 26

It is possible for a partner's Capital account to increase even if a net loss occurs.

Question 27

When a partner invests a noncash asset into the partnership,the partner's Capital account is debited and an asset account is credited.

Question 28

The division of income is one area in which a partnership differs from a corporation.

Question 29

The salary allocation to partners also appears as Salaries Expense on the partnership income statement.

Question 30

If a partnership agreement does not specify how income and losses are to be distributed,the partners share them equally.

Question 31

It is possible to allocate income or loss to partners based solely on interest.

Question 32

The use of salaries in the allocation of income or loss allows for the differences in the services that partners provide the business.

Question 33

It is possible to invest no tangible assets into a partnership,yet be given a positive opening capital balance.

Question 34

When a loss is closed into the partners' Capital accounts,Income Summary is debited.

Question 35

Income or loss can be allocated to partners based solely on average capital balances.

Question 36

Partnership income or loss can be divided solely on the basis of salaries or interest.

Question 37

The salary,interest,and stated ratio method of allocation can still be applied when a net loss has occurred.

Question 38

When the existing partners pay a bonus to a newly admitted partner,the existing partners' accounts are debited.

Question 39

When M purchases N's $10,000 capital interest for $10,000,the ensuing entry on the books of the partnership would contain a debit to Cash for $10,000.

Question 40

Income and losses are divided equally among the partners unless the partnership agreement specifies otherwise.

Question 41

Partner A purchases partner B's $3,000 interest from partner B for $5,000.The entry to record the transaction is for $3,000.

Question 42

Liquidation of a partnership is the process of ending the business.

Question 43

Admission of a new partner never has an impact on net income.

Question 44

When a partner leaves a partnership,it is possible that total assets will be unaffected.

Question 45

A new partner must have the consent of all the partners before being admitted into the partnership.

Question 46

The admission of a partner does not change the composition of partners' equity if the new partner purchases the old partner's interest by paying the old partner directly.

Question 47

When a withdrawing partner withdraws assets less than his or her capital balance,the excess is treated as a bonus to the remaining partners.

Question 48

A partner's inability to meet his or her obligations at the time of liquidation does not relieve that individual of his or her liabilities to the other partners.

Question 49

After selling all the assets and paying the liabilities in a liquidation of a partnership,the partners share any remaining cash according to the stated ratios.

Question 50

When a new partner invests less than the proportionate share he or she receives in the partnership,a bonus is recorded to his or her account.

Question 51

When a new partner is admitted,the old partnership agreement is still in effect.

Question 52

Gains and losses on the sale of assets in a liquidation are divided among partners according to the stated ratios.

Question 53

A partnership is liquidated when a new partner is admitted to the partnership.

Question 54

If the asset accounts did not reflect their current values,the asset accounts would need to be adjusted before admitting the new partner.

Question 55

A partner who withdraws from a partnership may not be entitled to the balance in his or her Capital account.

Question 56

If liquidation of a partnership results in a negative balance in a partner's account,the partner must pay into the partnership the amount of the negative balance.

Question 57

In a liquidation,partners are given back the assets that they originally invested.

Question 58

Partnership liquidation is not the same as partnership dissolution.

Question 59

In a liquidation,one partner may have to make up the deficit in another partner's account.

Question 60

The death of a partner dissolves the partnership.

Question 61

Unlimited liability refers to

A)a claim to the partners' personal assets by creditors if the partnership cannot pay its debts.
B)the ability of any partner to bind the partnership to a business agreement as long as he or she acts within the scope of the company's normal operations.
C)co-ownership of partnership property.
D)the method of income and loss distribution.

Question 62

Which of the following does not result in the dissolution of a partnership?

A)Death of a partner
B)Admission of a new partner
C)Withdrawal of a partner
D)Sale of partnership assets

Question 63

The most appropriate place to look for relationships among partners is in the

A)partnership agreement
B)accounting records
C)relevant state law
D)voluntary association

Question 64

When a partner invests assets other than cash into a partnership,those assets should be listed on the balance sheet at

A)their original cost
B)their carrying (book)value
C)their fair market value
D)the value the investing partner assigns to them

Question 65

Only not-for-profit organizations form joint ventures.

Question 66

By meeting certain conditions,a company that sets up an Special-purpose entity (SPE)can legitimately avoid including the debt of the SPE on its balance sheet

Question 67

A partner invests into a partnership a building with a $50,000 carrying value and $80,000 fair market value.The related mortgage payable of $25,000 is assumed by the partnership.The entry to record the investment in partnership is:

A)Building 50,000 Mortgage Payable 25,000
Capital 25,000
B)Building 80,000 Mortgage Payable 25,000
Capital 55,000
C)Capital 80,000 Mortgage Payable 25,000
Building 55,000
D)Capital 50,000 Mortgage Payable 25,000
Building 25,000

Question 68

The entities forming joint ventures usually involve companies,but can sometimes involve governments.

Question 69

In a limited partnership,the general partner's liability is unlimited.

Question 70

Which of the following is incorrect regarding partnerships?

A)Legally,there is no economic separation between a partnership and its owners.
B)A partnership is a voluntary association of individuals.
C)If the partnership agreement does not describe the method of income and loss distribution,the partners must share income and losses equally.
D)When individuals invest property in a partnership,they co-own the property with the partnership.

Question 71

Disadvantages of a partnership include

A)Facilitates pooling of resources.
B)No corporate tax burden.
C)Mutual agency.
D)Freedom and flexibility for partners.

Question 72

Which of the following is a characteristic of partnerships?

A)Unlimited life
B)Limited liability
C)Involuntary association
D)Mutual agency

Question 73

A partnership need not obtain permission from the state before it legally conducts business.

Question 74

The ability of a partner to enter into a contract on behalf of all partners is called

A)the partnership agreement
B)voluntary association
C)mutual agency
D)unlimited liability

Question 75

A limited partnership normally has one or more general partners whose liability is unlimited.

Question 76

Which of the following partnership characteristics is an advantage?

A)Mutual agency
B)Ease of dissolution
C)Unlimited liability
D)Limited life

Question 77

A partner invests into a partnership a building with a $50,000 carrying value and $40,000 fair market value.The related mortgage payable of $25,000 is assumed by the partnership.The entry to record the investment in partnership is:

A)Building 50,000 Mortgage Payable 25,000
Capital 25,000
B)Building 40,000 Mortgage Payable 25,000
Capital 15,000
C)Building 50,000 Loss 10,000
Mortgage Payable 25,000
Capital 35,000
D)Capital 50,000 Loss 10,000
Mortgage Payable 25,000
Building 35,000

Question 78

A partnership agreement should include

A)the method of allocating profits and losses.
B)investments of each partner.
C)procedures for admitting partners.
D)All of these choices.

Question 79

The potential loss of all partners in an ordinary partnership is limited only by personal bankruptcy laws.

Question 80

Noncash assets invested into a partnership are recorded at

A)their fair market value
B)their carrying value
C)zero
D)their original cost