Deck 17: Partnerships

Question 1

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

Answer 1

True

Question 2

A partner who invests assets into a partnership retains control over those specified assets.

Answer 2

False

Question 3

A partnership agreement should include the procedure for ending the business.

Answer 3

True

Question 4

A partnership is easy to form and to dissolve.

Question 5

Before a partnership can legally conduct business, it must obtain permission from the state.

Question 6

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

Question 7

Only not-for-profit organizations form joint ventures.

Question 8

Bankruptcy of a partner will dissolve the partnership.

Question 9

An advantage of the partnership form of business is that each partner's potential loss is limited to that partner's investment in the partnership.

Question 10

There is no income tax imposed on a partnership.

Question 11

Ownership is easily transferred in a partnership.

Question 12

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

Question 13

In a limited partnership, the general partner's liability is limited to his or her investment.

Question 14

A partnership is a legal entity separate and apart from its owners.

Question 15

Under the partnership form of business, large amounts of capital can be raised easily.

Question 16

A partnership has a limited life, because any change in the relationship of the partners dissolves the partnership.

Question 17

A partnership agreement must be in writing.

Question 18

Each partner is personally liable for all debts of the partnership.

Question 19

An informational tax return must be filed for a partnership.

Question 20

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

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

Liabilities related to assets invested in a partnership by a new partner cannot be transferred to the partnership.

Question 23

It is possible for a partner's Capital account to increase as a result of the allocation of a net loss.

Question 24

When a partner invests assets in a partnership, the assets are recorded at the partner's book value.

Question 25

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

Question 26

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

Question 27

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

Question 28

If a partnership agreement does not specify how income and losses are to be distributed, they should be allocated based on relative Capital account balances.

Question 29

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

Question 30

The salary, interest, and stated ratio method of allocation cannot be applied when a net loss has occurred.

Question 31

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

Question 32

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

Question 33

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

Question 34

Partners' Withdrawals accounts have normal credit balances.

Question 35

It is possible to allocate income or loss to partners based solely on average capital balances.

Question 36

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

Question 37

Each partner has a separate Capital and Withdrawals account.

Question 38

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

Question 39

It is possible to allocate income or loss to partners based solely on the stated ratio.

Question 40

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

Question 41

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 42

The death of a partner dissolves the partnership.

Question 43

A partner who withdraws from a partnership is always entitled to the balance in his or her Capital account.

Question 44

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 45

There is no impact on the income statement of a partnership when a partner withdraws from the business.

Question 46

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

Question 47

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

Question 48

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

Question 49

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 50

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 51

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

Question 52

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

Question 53

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

Question 54

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

Question 55

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

Question 56

When a new partner is admitted, a new partnership agreement should be in place.

Question 57

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

Question 58

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

Question 59

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

Question 60

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 61

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

Question 62

Joint ventures

A) have become outmoded
B) are a form of partnership
C) are used only in the United States
D) have unlimited life

Question 63

Which of the following is not a characteristic of partnerships?

A) Limited life
B) Limited liability
C) Voluntary association
D) Mutual agency

Question 64

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 65

A partner will not bind the partnership to an outside purchase contract when the

A) the item purchased is considered immaterial in amount
B) item purchased is not within the normal scope of the business
C) partner was not authorized by the other partners to make the purchase
D) partner who made the purchase withdraws from the partnership

Question 66

In a partnership gain or Loss from Realization is debited for a loss.

Question 67

Claim to the partners' personal assets by creditors if the partnership cannot pay its debts refers to

A) liquidation
B) mutual agency
C) unlimited liability
D) dissolution

Question 68

Which of the following partnership characteristics is an advantage?

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

Question 69

In a limited partnership

A) the general partners have limited liability
B) all partners have limited liability
C) all but the general partners have unlimited liability
D) all but the general partners have limited liability

Question 70

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 71

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 72

Partners R and S receive a salary allowance of $3,000 and $7,000, respectively, and share the remainder equally. If the company earned $4,000 during the period, the entry to close the income or loss into their capital accounts is:

Question 73

A partnership agreement should include

A) the method of allocating profits and losses
B) each partner's duties
C) the purpose of the business
D) all of these

Question 74

Gains and losses on the sale of assets in a liquidation are divided equally among partners.

Question 75

Noncash assets invested into a partnership are recorded at

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

Question 76

Which of the following partnership characteristics is a disadvantage?

A) Participation in partnership income
B) Ease of dissolution
C) Unlimited liability
D) Voluntary association

Question 77

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 78

Partnership liquidation is the same as partnership dissolution.

Question 79

A partner's inability to meet his or her obligations at the time of liquidation relieves that individual of his or her liabilities to the other partners.

Question 80

A partner invests into a partnership a building with a $25,000 carrying value and $40,000 fair market value. The related mortgage payable of $12,500 is assumed by the partnership. The entry to record the investment in partnership is: