Deck 12: Accounting for Partnerships

Question 1

Mutual agency means each partner can commit or bind the partnership to any contract within the scope of the partnership business.

Answer 1

True

Question 2

A partnership cannot use salary allowances or interest allowances to allocate income and losses to the partners because these items are not reported on the partnership income statement.

Answer 2

False

Question 3

In closing the accounts at the end of a period,the partners' capital accounts are credited for their share of the partnership loss or debited for their share of the partnership net income.

Answer 3

True

Question 4

The withdrawals account of each partner is closed to retained earnings at the end of the accounting period.

Question 5

A partnership is an unincorporated association of two or more people to pursue a business for profit as co-owners.

Question 6

Limited liability partnerships are designed to protect innocent partners from malpractice or negligence claims resulting from the acts of another partner.

Question 7

The equity section of the balance sheet of a partnership can report the separate capital account balances of each partner.

Question 8

Partners in a partnership are taxed on the amounts they withdraw from the partnership,not the partnership income.

Question 9

Partner return on equity can be used by each partner to help decide whether additional investment or withdrawal of resources is best for that partner.

Question 10

Partners' withdrawals are credited to their separate withdrawals accounts.

Question 11

The statement of changes in partners' equity shows the beginning balance in retained earnings,plus investments,less withdrawals,plus the income (or less the loss)and the ending balance in retained earnings.

Question 12

A partnership has an unlimited life.

Question 13

In a limited partnership the general partner has unlimited liability.

Question 14

If partners devote their time and services to their partnership,their salaries are expenses on the income statement.

Question 15

Accounting procedures for all items are the same for both C corporations and S corporations in all aspects.

Question 16

If the partners agree on a formula to share income and say nothing about losses,then the losses are shared equally.

Question 17

Salary allowances are reported as salaries expense on a partnership income statement.

Question 18

When partners invest in a partnership,their capital accounts are credited for the amount invested.

Question 19

Partners can invest both assets and liabilities into a partnership.

Question 20

Benson is a partner in B&D Company.Benson's share of the partnership income is $18,600 and her average partnership equity is $155,000.Her partner return on equity equals 8.33.

Question 21

When a partner leaves a partnership,the present partnership ends,but the business can still continue to operate.

Question 22

A partnership designed to protect innocent partners from malpractice or negligence claims resulting from acts of another partner is a:

A)Partnership.
B)Limited partnership.
C)Limited liability partnership.
D)General partnership.
E)Limited liability company.

Question 23

To buy into an existing partnership,the new partner must contribute cash to the partnership.

Question 24

Admitting a partner by accepting assets is a personal transaction between one or more current partners and the new partner.

Question 25

A capital deficiency can arise from liquidation losses,excessive withdrawals before liquidation,or recurring losses in prior periods.

Question 26

Disadvantages of a partnership include:

A)Limited life.
B)Mutual agency.
C)Unlimited liability.
D)Co-ownership of property.
E)All of the choices are disadvantages.

Question 27

An unincorporated association of two or more persons to carry on a business for profit as co-owners is a:

A)Partnership.
B)Proprietorship.
C)Contractual company.
D)Mutual agency.
E)Voluntary organization.

Question 28

If at the time of partnership liquidation,a partner has a $5,000 capital deficiency and pays the partnership $5,000 out of personal assets to cover the deficiency,then that partner is entitled to share in the final distribution of cash.

Question 29

A partnership that has two classes of partners,general and limited,where the limited partners have no personal liability beyond the amounts they invest in the partnership,and no active role in the partnership,except as specified in the partnership agreement is a:

A)Mutual agency partnership.
B)Limited partnership.
C)Limited liability partnership.
D)General partnership.
E)Limited liability company.

Question 30

When the current value of a partnership is greater than the recorded amounts of equity,the current partners usually require any new partner to pay a bonus for the privilege of joining.

Question 31

When a partnership is liquidated,its business is ended.

Question 32

Assume that the S & B partnership agreement gave Steely 60% and Breck 40% of partnership income and losses.The partnership lost $27,000 in the current period.This implies that Steely's share of the loss equals $16,200,and Breck's share equals $10,800.

Question 33

When a partner leaves a partnership,the withdrawing partner is entitled to a bonus if the recorded equity is overstated.

Question 34

A capital deficiency exists when all partners have a credit balance in their capital accounts.

Question 35

When a partner leaves a partnership,the present partnership ends.

Question 36

Mutual agency implies that each partner in a partnership is a fully authorized agent of the partnership.Which of the following statements is correct regarding the authority of a partner to bind the partnership in dealings with third parties?

A)The partner's authority must be derived from the partnership agreement.
B)The partner's authority may be effectively limited by a formal resolution of the other partners, even if third parties are not aware of that limitation.
C)Only a partner with a majority interest in a partnership has the authority to represent the partnership to third parties.
D)A partner has authority to deal with third parties on the behalf of the other partners only if he has written permission to do so.
E)A partner may be able to legally bind the partnership to actions even if the other partners are unaware of his actions.

Question 37

Assets invested by a partner into a partnership remain the property of the individual partner.

Question 38

If a partner is unable to cover a deficiency and the other partners absorb the deficiency,then the partner with the deficiency is thus relieved of all liability.

Question 39

Mutual agency means

A)Creditors can apply their claims to partners' personal assets.
B)Partners are taxed on partnership withdrawals.
C)All partners must agree before the partnership can act.
D)The partnership has a limited life.
E)A partner can commit or bind the partnership in any contract within the scope of the partnership business.

Question 40

A partnership agreement:

A)Is not binding unless it is in writing.
B)Is the same as a limited liability partnership.
C)Is binding even if it is not in writing.
D)Does not generally address the issue of the rights and duties of the partners.
E)Is also called the articles of incorporation.

Question 41

Partnership accounting:

A)Uses a capital account for each partner.
B)Uses a withdrawals account for each partner.
C)Allocates net income to each partner according to the partnership agreement.
D)Allocates net loss to each partner according to the partnership agreement.
E)All of the choices are correct.

Question 42

In the absence of a partnership agreement,the law says that income (and loss)should be allocated based on:

A)A fractional basis.
B)The ratio of capital investments.
C)Salary allowances.
D)Equal shares.
E)Interest allowances.

Question 43

In a partnership agreement,if the partners agreed to an interest allowance of 10% annually on each partner's investment,the interest allowance:

A)Is ignored when earnings are not sufficient to pay interest.
B)Can make up for unequal capital contributions.
C)Is an expense of the business.
D)Must be paid because the partnership contract has unlimited life.
E)Legally becomes a liability of the general partner.

Question 44

Rice,Hepburn,and DiMarco formed a partnership with Rice contributing $60,000,Hepburn contributing $50,000 and DiMarco contributing $40,000.Their partnership agreement called for the income (loss)division to be based on the ratio of capital investments.If the partnership had income of $75,000 for its first year of operation,what amount of income (rounded to the nearest thousand)would be credited to DiMarco's capital account?

A)$20,000.
B)$25,000.
C)$30,000.
D)$40,000.
E)$75,000.

Question 45

Regina Harrison is a partner in Pressed for Time.An analysis of Regina Harrison's capital account indicates that during the most recent year,she withdrew $20,000 from the partnership.Her share of the partnership's net loss was $16,000 and she made an additional equity contribution of $10,000.Her capital account ended the year at $150,000.What was her capital balance at the beginning of the year?

A)$124,000
B)$144,000
C)$192,000
D)$176,000
E)$134,000

Question 46

Which of the following statements is true?

A)Partners are employees of the partnership.
B)Salaries to partners are expenses on the partnership income statement.
C)Salary allowances usually reflect the relative value of services provided by partners.
D)Salary allowances are expenses.
E)Interest allowances are expenses.

Question 47

Collins and Farina are forming a partnership.Collins is investing a building that has a market value of $80,000.However,the building carries a $56,000 mortgage that will be assumed by the partnership.Farina is investing $20,000 cash.The balance of Collins' Capital account will be:

A)$80,000.
B)$24,000.
C)$56,000.
D)$44,000.
E)$60,000.

Question 48

Renee Jackson is a partner in Sports Promoters.Her beginning partnership capital balance for the current year is $55,000,and her ending partnership capital balance for the current year is $62,000.Her share of this year's partnership income was $5,250.What is her partner return on equity?

A)8.47%
B)8.97%
C)9.54%
D)10.47%
E)10.60%

Question 49

Nguyen invested $100,000 and Hansen invested $200,000 in a partnership.They agreed to share incomes and losses by allowing a $60,000 per year salary allowance to Nguyen and a $40,000 per year salary allowance to Hansen,plus an interest allowance on the partners' beginning-year capital investments at 10%,with the balance to be shared equally.Under this agreement,the shares of the partners when the partnership earns $105,000 in income are:

A)$52,500 to Nguyen; $52,500 to Hansen.
B)$35,000 to Nguyen; $70,000 to Hansen.
C)$57,500 to Nguyen; $47,500 to Hansen.
D)$42,500 to Nguyen; $62,500 to Hansen.
E)$70,000 to Nguyen; $60,000 to Hansen.

Question 50

David and Jeannie formed This & That as a limited liability company.Unless the member owners elect to be treated otherwise,the Internal Revenue Service will tax the LLC as:

A)An S corporation.
B)A C corporation.
C)A non-taxable entity.
D)A joint venture.
E)A partnership.

Question 51

Chen and Wright are forming a partnership.Chen will invest a building that currently is being used by another business owned by Chen.The building has a market value of $90,000.Also,the partnership will assume responsibility for a $30,000 note secured by a mortgage on that building.Wright will invest $50,000 cash.For the partnership,the amounts to be recorded for the building and for Chen's Capital account are:

A)Building, $90,000 and Chen, Capital, $90,000.
B)Building, $60,000 and Chen, Capital, $60,000.
C)Building, $60,000 and Chen, Capital, $50,000.
D)Building, $90,000 and Chen, Capital, $60,000.
E)Building, $60,000 and Chen, Capital, $90,000.

Question 52

The following information is available regarding John Smith's capital account in Technology Consulting Group,a general partnership,for a recent year:
What is Smith's partner return on equity during the year in question?

A)36.6%
B)34.7%
C)10.8%
D)11.4%
E)55.7%

Question 53

Trump and Hawthorne have decided to form a partnership.Trump is going to contribute a depreciable asset to the partnership as his equity contribution to the partnership.The following information regarding the asset to be contributed by Trump is available:
Historical cost of the asset ………………… $76,000
Accumulated depreciation on the asset………………… $40,000
Note payable secured by the asset* ………………… $18,000
Agreed-upon market value of the asset ………………… $45,000
*will be assumed by the partnership
Based on this information,Trump's beginning equity balance in the partnership will be:

A)$76,000
B)$36,000
C)$18,000
D)$27,000
E)$45,000

Question 54

A partnership in which all partners have mutual agency and unlimited liability is called:

A)Limited partnership.
B)Limited liability partnership.
C)General partnership.
D)S corporation.
E)Limited liability company.

Question 55

Web Services is organized as a limited partnership,with David White as one of its partners.David's capital account began the year with a balance of $45,000.During the year,David's share of the partnership income was $7,500,and David received $4,000 in distributions from the partnership.What is David's partner return on equity?

A)7.8%
B)8.9%
C)15.4%
D)16.0%
E)16.7%

Question 56

Partners' withdrawals of assets are:

A)Credited to their withdrawals accounts.
B)Debited to their withdrawals accounts.
C)Credited to their retained earnings.
D)Debited to their retained earnings.
E)Debited to their asset accounts.

Question 57

The withdrawals account of each partner is:

A)Closed to that partner's capital account with a credit.
B)Closed to that partner's capital account with a debit.
C)A permanent account that is not closed.
D)Credited with that partner's share of net income.
E)Debited with that partner's share of net loss.

Question 58

Partnership accounting:

A)Is the same as accounting for a sole proprietorship.
B)Is the same as accounting for a corporation.
C)Is the same as accounting for a sole proprietorship, except that separate capital and withdrawal accounts are kept for each partner.
D)Is the same as accounting for an S corporation.
E)Is the same as accounting for a corporation, except that retained earnings is used to keep track of partners' withdrawals.

Question 59

Shelby and Mortonson formed a partnership with capital contributions of $300,000 and $400,000,respectively.Their partnership agreement calls for Shelby to receive a $60,000 per year salary.Also,each partner is to receive an interest allowance equal to 10% of a partner's beginning capital investments.The remaining income or loss is to be divided equally.If the net income for the current year is $135,000,then Shelby and Mortonson's respective shares are:

A)$67,500; $67,500.
B)$92,500; $42,500.
C)$57,857; $77,143.
D)$90,000; $40,000.
E)$35,000; $100,000.

Question 60

The partnership agreement for Smith,Wesson & Davis,a general partnership,provided that profits be shared between the partners in the ratio of their financial contributions to the partnership.Smith contributed $100,000,Wesson contributed $60,000 and Davis contributed $20,000.In the partnership's first year of operation,it incurred a loss of $210,000.What amount of the partnership's loss,rounded to the nearest dollar,should be absorbed by Smith?

A)$70,000
B)$116,667
C)$23,333
D)$105,000
E)$52,500

Question 61

Smith,West,and Krug form a partnership.Smith contributes $180,000,West contributes $150,000,and Krug contributes $270,000.Their partnership agreement calls for the income or loss division to be based on the ratio of capital invested.If the partnership reports income of $175,000 for its first year,what amount of income is credited to Smith's capital account?

A)$43,750.
B)$78,750.
C)$52,500.
D)$58,333.
E)$60,000.

Question 62

Badger and Fox are forming a partnership.Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property.Fox invests $100,000 in cash and equipment that has a market value of $75,000.For the partnership,the amounts recorded for total assets and for total capital account are:

A)Total assets $525,000; total capital $400,000.
B)Total assets $400,000; total capital $400,000.
C)Total assets $650,000; total capital $650,000.
D)Total assets $400,000; total capital $525,000.
E)Total assets $525,000; total capital $525,000.

Question 63

Sam,Bart,and Lex are dissolving their partnership.Their partnership agreement allocates each partner 1/3 of all income and losses.The current period's ending capital account balances are Sam,$45,000; Bart,$37,000; and Lex,$(5,000).After all assets are sold and liabilities are paid,there is $77,000 in cash to be distributed.Lex is unable to pay the deficiency.The journal entry to record the distribution should be:

A)Debit Sam, Capital $25,667; debit Bart, Capital $25,667; debit Lex, Capital $25,666; credit Cash $77,000.
B)Debit Sam, Capital $42,500; debit Bart, Capital $34,500; credit Cash $77,000.
C)Debit Sam, Capital $45,000; debit Bart, Capital $37,000; credit Lex, Capital $5,000; credit Cash $77,000.
D)Debit Cash $77,000, debit Lex, Capital $5,000, credit Sam, Capital $45,000, credit Bart, Capital $37,000.
E)Debit Cash $77,000; credit Sam, Capital $25,667; credit Bart, Capital $25,667; credit Lex, Capital $25,666.

Question 64

Jane and Castle are partners and share equally in income or loss.Jane's current capital balance is $140,000 and Castle's is $130,000.Jane and Castle agree to accept Sean with a 30% interest in the partnership.Sean invests $108,000 in the partnership.The amount credited to Sean's capital account is:

A)$108,000.
B)$102,600.
C)$110,500.
D)$115,000.
E)$113,400.

Question 65

Jane and Castle are partners and share equally in income or loss.Jane's current capital balance is $140,000 and Castle's is $130,000.Jane and Castle agree to accept Sean with a 30% interest in the partnership.Sean invests $108,000 in the partnership.The balances in Jane's and Castle's capital accounts after admission of the new partner equal:

A)Jane $140,000; Castle $130,000.
B)Jane $142,700; Castle $132,700.
C)Jane $145,000; Castle $135,000.
D)Jane $137,300; Castle $127,300.
E)Jane $135,000; Castle $124,000.

Question 66

When a partner is added to a partnership:

A)The previous partnership ends.
B)The underlying business operations end.
C)The underlying business operations must close and then re-open.
D)The partnership must continue.
E)The partnership equity always increases.

Question 67

Smith,West,and Krug form a partnership.Smith contributes $180,000,West contributes $150,000,and Krug contributes $270,000.Their partnership agreement calls for a 5% interest allowance on the partner's capital balances with the remaining income or loss to be allocated equally.If the partnership reports income of $174,000 for its first year,what amount of income is credited to West's capital account?

A)$58,000.
B)$57,000.
C)$61,500.
D)$55,500.
E)$48,000.

Question 68

Mack,Harris,and Huss are dissolving their partnership.Their partnership agreement allocates income and losses equally among the partners.The current period's ending capital account balances are Mack,$15,000; Harris,$15,000; Huss,$(2,000).After all the assets are sold and liabilities are paid,but before any contributions to cover any deficiencies,there is $28,000 in cash to be distributed.Huss pays $2,000 to cover the deficiency in his account.The general journal entry to record the final distribution would be:

A)Debit Mack, Capital $15,000; debit Harris, Capital $15,000; credit Cash $30,000.
B)Debit Mack, Capital $14,000; debit Harris, Capital $14,000; credit Cash $28,000.
C)Debit Mack, Capital $15,000; debit Harris, Capital $15,000; credit Huss, Capital $2,000; credit Cash $28,000.
D)Debit Cash $28,000; debit Huss, Capital $2,000; credit Mack, Capital $15,000; credit Harris, Capital $15,000.
E)Debit Mack, Capital $9,334; debit Harris, Capital $9,333; debit Huss, Capital $9,333; credit Cash $28,000.

Question 69

Chase and Hatch are partners and share equally in income or loss.Chase's current capital balance is $135,000 and Hatch's is $120,000.Chase and Hatch agree to accept Flax with a 30% interest in the partnership.Flax invests $115,000 in the partnership.The balances in Chase's and Hatch's capital accounts after admission of the new partner equal:

A)Chase $135,000; Hatch $120,000.
B)Chase $137,000; Hatch $122,000
C)Chase $133,000; Hatch $118,000.
D)Chase $139,000; Hatch $120,000.
E)Chase $135,000; Hatch $124,000.

Question 70

A bonus may be paid:

A)By a new partner when the current value of a partnership is greater than the recorded amounts of equity.
B)By a withdrawing partner to remaining partners if the recorded value of the equity is overstated.
C)To a new partner with exceptional talents.
D)By remaining partners to a withdrawing partner if the recorded equity is understated.
E)In all of the situations listed.

Question 71

Groh and Jackson are partners.Groh's capital balance in the partnership is $64,000,and Jackson's capital balance $61,000.Groh and Jackson have agreed to share equally in income or loss.Groh and Jackson agree to accept Block with a 20% interest.Block will invest $35,000 in the partnership.The bonus that is granted to Groh and Jackson equals:

A)$1,500 each.
B)$1,875 each.
C)$3,750 each.
D)1,920 to Groh; $1,830 to Jackson.
E)$0, because Groh and Jackson actually grant a bonus to Block.

Question 72

When a partner is unable to pay a capital deficiency:

A)The partner must take out a loan to cover the deficient balance.
B)The deficiency is absorbed by the remaining partners before distribution of cash.
C)The partnership ends before distribution of cash.
D)The deficient partner is relieved of the liability.
E)The remaining partners must wait for the deficiency to be paid before cash is distributed.

Question 73

The following information is available on Stewart Enterprises,a partnership,for the most recent fiscal year:
Total partnership capital at beginning of the year $180,000
Partnership net income for the year $150,000
Withdrawals by partners during the year $120,000
Additional investments by partners during the year $ 60,000
There are three partners in Stewart Enterprises:
Stewart,Tedder and Armstrong.At the end of the year,the partners' capital accounts were in the ratio of 2:
1:
2,respectively.Compute the ending capital balances of the three partners.

A)Stewart = $108,000; Tedder = $54,000; Armstrong = $108,000.
B)Stewart = $90,000; Tedder = $90,000; Armstrong = $90,000.
C)Stewart = $204,000; Tedder = $102,000; Armstrong = $204,000.
D)Stewart = $84,000; Tedder = $102,000; Armstrong = $84,000.
E)Stewart = $60,000; Tedder = $30,000; Armstrong = $60,000.

Question 74

Badger and Fox are forming a partnership.Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property.Fox invests $100,000 in cash and equipment that has a market value of $75,000.For the partnership,the amounts recorded for Badger's Capital account and for Fox's Capital account are:

A)Badger, Capital $350,000; Fox, Capital $175,000.
B)Badger, Capital $225,000; Fox, Capital $100,000.
C)Badger, Capital $225,000; Fox, Capital $75,000.
D)Badger, Capital $350,000; Fox, Capital $100,000.
E)Badger, Capital $225,000; Fox, Capital $175,000.

Question 75

A partner can withdraw from a partnership by:

A)Selling his/her interest to another person for cash.
B)Selling his/her interest to another person in exchange for assets.
C)Receiving cash from the partnership in the amount of his/her interest.
D)Receiving assets from the partnership in the amount of his/her interest.
E)All of the options are correct.

Question 76

Groh and Jackson are partners.Groh's capital balance in the partnership is $64,000,and Jackson's capital balance $61,000.Groh and Jackson have agreed to share equally in income or loss.Groh and Jackson agree to accept Block with a 25% interest.Block will invest $35,000 in the partnership.The bonus that is granted to Block equals:

A)$5,000.
B)$2,500.
C)$6,667.
D)$3,333.
E)$0, because Block must actually grant a bonus to Groh and Jackson.

Question 77

Smith,West,and Krug form a partnership.Smith contributes $180,000,West contributes $150,000,and Krug contributes $270,000.Their partnership agreement calls for a 5% interest allowance on the partner's capital balances with the remaining income or loss to be allocated equally.If the partnership reports income of $174,000 for its first year,what amount of income is credited to Krug's capital account?

A)$58,000.
B)$57,000.
C)$61,500.
D)$55,500.
E)$48,000.

Question 78

Smith,West,and Krug form a partnership.Smith contributes $180,000,West contributes $150,000,and Krug contributes $270,000.Their partnership agreement calls for the income or loss division to be based on the ratio of capital invested.If the partnership reports income of $175,000 for its first year,what amount of income is credited to Krug's capital account?

A)$43,750.
B)$78,750.
C)$52,500.
D)$58,333.
E)$60,000.

Question 79

Badger and Fox are forming a partnership.Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property.Fox invests $100,000 in cash and equipment that has a market value of $75,000.For the partnership,the amounts recorded for the building and for Badger's Capital account are:

A)Building $350,000; Badger, Capital $350,000.
B)Building $225,000; Badger, Capital $225,000.
C)Building $225,000; Badger, Capital $125,000.
D)Building $350,000; Badger, Capital $225,000.
E)Building $350,000; Badger, Capital $300,000.

Question 80

A capital deficiency means that:

A)The partnership has a loss.
B)The partnership has more liabilities than assets.
C)At least one partner has a debit balance in his/her capital account.
D)At least one partner has a credit balance in his/her capital account.
E)The partnership has been sold at a loss.