Deck 12: Accounting for Partnerships

Question 1

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

Answer 1

True

Question 2

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

Answer 2

False

Question 3

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

Answer 3

False

Question 4

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

Question 5

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 6

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

Question 7

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

Question 8

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

Question 9

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

Question 10

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

Question 11

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

Question 12

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

Question 13

Partners' Withdrawals accounts have normal debit balances.

Question 14

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

Question 15

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

Question 16

An informational tax return must be filed for a partnership.

Question 17

A partnership agreement need not be in writing.

Question 18

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

Question 19

There is no income tax imposed on a partnership.

Question 20

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

Question 21

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 22

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

Question 23

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

Question 24

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

Question 25

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

Question 26

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

Question 27

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

Question 28

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

Question 29

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 30

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

Question 31

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

Question 32

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

Question 33

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

Question 34

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

Question 35

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

Question 36

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

Question 37

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

Question 38

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

Question 39

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

Question 40

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

Question 41

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 42

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

Question 43

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 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

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

Question 46

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

Question 47

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

Question 48

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 49

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

Question 50

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 51

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

Question 52

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

Question 53

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 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

Partnership liquidation is not the same as partnership dissolution.

Question 56

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

Question 57

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

Question 58

The death of a partner dissolves the partnership.

Question 59

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

Question 60

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 61

Which of the following is a characteristic of partnerships?

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

Question 62

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 63

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 64

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

Question 65

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 66

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 67

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 68

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

Question 69

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 70

Which of the following partnership characteristics is an advantage?

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

Question 71

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 72

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

Question 73

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 74

Only not-for-profit organizations form joint ventures.

Question 75

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 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

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

Question 78

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

Question 79

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 80

Disadvantages of a partnership include

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