Deck 27: Accounting for Unincorporated Businesses

Question 1

There is no income tax imposed on a partnership.

Answer 1

True

Question 2

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

Answer 2

True

Question 3

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

Answer 3

True

Question 4

An informational tax return must be filed for a partnership.

Question 5

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

Question 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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 13

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

Question 14

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

Question 15

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

Question 16

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

Question 17

Partners' Withdrawals accounts have normal debit balances.

Question 18

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

Question 19

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

Question 20

A partnership agreement need not be in writing.

Question 21

Income is divided equally among the partners unless the partnership agreement specifies otherwise.

Question 22

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 23

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 24

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

Question 25

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 26

If a partnership agreement does not specify how income is to be distributed,the partners share the income equally.

Question 27

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

Question 28

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

Question 29

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 30

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 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

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

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 43

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 44

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

Question 45

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

Question 46

Partnership liquidation is not the same as partnership dissolution.

Question 47

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

Question 48

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 distribution.

Question 49

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

Question 50

Which of the following is a characteristic of partnerships?

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

Question 51

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

Question 52

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

Question 53

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

Question 54

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

Question 55

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 56

A partnership agreement should include

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

Question 57

Which of the following partnership characteristics is an advantage?

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

Question 58

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

Question 59

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 60

The death of a partner dissolves the partnership.

Question 61

Alex,Clinton,and Evan are in a partnership.Evan decides to withdraw from the partnership by selling his interest to Linsey.Alex and Clinton agree to this.Alex's Capital account and Clinton's Capital account

A)will not be affected when Linsey is admitted.
B)will decrease when Linsey is admitted.
C)will increase when Linsey is admitted.
D)cannot be determined from the information given.

Question 62

Which of the following methods of distributing income cannot be accomplished (cannot stand alone)?

A)Capital balance ratio alone
B)Interest and stated ratio alone
C)Stated ratio alone
D)Salary alone

Question 63

Which of the following statements is correct regarding partnerships?

A)Accounting for a partnership is similar to accounting for a corporation.
B)If the partnership assumes a liability related to an asset invested in the partnership,the partner's capital account is credited and a liability account is debited.
C)It is necessary to maintain separate Capital and Withdrawals accounts for each partner.
D)All of these choices.

Question 64

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 distribution,the partners must share income equally.
D)When individuals invest property in a partnership,they co-own the property with the partnership.

Question 65

Which of the following statements is correct regarding partnerships?

A)Accounting for a partnership is similar to accounting for a sole proprietorship.
B)If the partnership assumes a liability related to an asset invested in the partnership,the asset is debited,the partner's capital account is credited and a liability account is credited.
C)It is necessary to maintain separate Capital and Withdrawals accounts for each partner.
D)All of these choices.

Question 66

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

A)Withdrawal of a partner.
B)Negative capital balance of a partner.
C)Death of a partner.
D)Admission of a new partner.

Question 67

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 68

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 not assumed by the partnership.The entry to record the investment in partnership is:

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

Question 69

Chad invests $20,000 for a one-third interest in a partnership in which the other partners have capital totaling $52,000 before admitting Chad.After distribution of the bonus,what is Chad's capital?

A)$10,666
B)$17,334
C)$20,000
D)$24,000

Question 70

Joan contributes cash of $48,000,and Jamie contributes office equipment that cost $40,000 but is valued at $32,000 to the formation of a new partnership.The entry to record the investments in the partnership is:

A)Cash 48,000 Equipment 40,000
Capital,Joan 48,000
Capital,Jamie 40,000
B)Cash 48,000 Equipment 32,000
Capital,Joan 48,000
Capital,Jamie 32,000
C)Cash 48,000 Equipment 40,000
Loss 8,000
Capital,Joan 48,000
Capital,Jamie 48,000
D)Cash 48,000 Equipment 40,000
Capital,Joan 48,000
Capital,Jamie 32,000
Loss,Jamie 8,000

Question 71

Sara invests $120,000 for a 30 percent interest in a partnership in which the other partners have capital totaling $200,000 before admitting Sara.After distribution of the bonus,what is Sara's capital balance?

A)$60,000
B)$96,000
C)$120,000
D)$144,000

Question 72

Joan pays Eva $60,000 for her $40,000 interest in a partnership.The entry to record the sale on the partnership books is:

A)Eva,Capital 60,000 Joan,Capital 60,000
B)Joan,Capital 60,000 Eva,Capital 60,000
C)Eva,Capital 60,000 Cash 60,000
D)Eva,Capital 40,000 Joan,Capital 40,000

Question 73

Cortney invests $80,000 for a 10 percent interest in a partnership that has total capital of $600,000 after admitting Cortney.Which of the following is true?

A)Cortney's capital is $52,000
B)The original partners' capital in the business was $540,000 before admitting Cortney
C)Cortney received a bonus of $20,000
D)The original partners received a bonus of $20,000

Question 74

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 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

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 77

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

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

Question 78

Partners A and B receive a salary of $16,000 and $14,000,respectively.They agree to share income equally.If the partnership has income of $280,000 in 20x5,the entry to close the income into their capital accounts is:

A)A,Capital 141,000 B,Capital 139,000
Income Summary 280,000
B)Income Summary 280,000 A,Capital 141,000
B,Capital 139,000
C)Income Summary 280,000 A,Capital 140,000
B,Capital 140,000
D)A,Capital 140,000 B,Capital 140,000
Income Summary 280,000

Question 79

Lexi invests $80,000 for a one-fourth interest in a partnership in which the other partners have capital totaling $160,000 before admitting Lexi.After distribution of the bonus,what is Lexi's capital balance?

A)$20,000
B)$40,000
C)$60,000
D)$80,000

Question 80

The division of partnership profits on the basis of salaries,interest,and a stated ratio is usually necessary because

A)partners seldom contribute time,effort,and resources equally.
B)this prevents arguments among the partners.
C)this reflects the amount of time devoted to the partnership by the partners.
D)most states require this method of distribution.