Question 1

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

Accepted Answer

Mutual agency is a characteristic of a partnership in which each partner can legally bind the partnership to any contract or obligation related to the partnership's business. This means that each partner can act on behalf of the partnership and make decisions that will affect the entire partnership.

Question 2

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

Accepted Answer

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

Question 3

In the absence of a partnership agreement,the law says that income of a partnership will be shared equally by the partners.

Accepted Answer

When a partnership agreement is not in place, the law assumes that partners have an equal share in the profits and losses. This is known as 'equal sharing of profits'.

Question 4

Partners can transfer both assets and liabilities to a partnership.

Accepted Answer

Partners can bring assets and liabilities into a partnership, which will be owned and shared by all partners according to their partnership agreement.

Question 5

The partnership agreement gives Yenny 60% and Queyen 40% of partnership incomes or losses.The partnership had a net loss of $32,000.Yenny's share of the loss was $16,200.Queyen's share was $15,800.

Accepted Answer

Given the partnership agreement, Yenny's share of the loss should be 60% of $32,000, which is $19,200, and Queyen's share should be 40% of $32,000, which is $12,800. The provided shares do not match these calculations.

Question 6

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

Accepted Answer

When a partner invests assets into a partnership, those assets become the property of the partnership, not the individual partner.

Question 7

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

Accepted Answer

If the partners agree on a formula for sharing income but say nothing about losses, the default rule is that losses are shared in proportion to the partners' capital contributions, unless otherwise specified in the partnership agreement. This means that partners who invested more money will bear a larger share of the losses.

Question 8

Partners' withdrawals are credited to their withdrawals accounts.

Accepted Answer

Partners' withdrawals are debited to their withdrawals accounts, as withdrawals decrease the partner's capital.

Question 9

In a limited partnership the general partner has unlimited liability.

Accepted Answer

In a limited partnership, the general partner is the one who manages the business and has unlimited liability, while the limited partners only have limited liability and do not participate in the management of the business.

Question 10

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

Accepted Answer

When a partner leaves a partnership, the original partnership agreement ends, but the remaining partners can choose to continue the business under a new agreement.

Question 11

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

Accepted Answer

A new partner can contribute assets other than cash, such as property, equipment, or expertise, as agreed upon by the existing partners.

Question 12

The withdrawal accounts of each partner are closed to retained earnings.

Accepted Answer

The withdrawal accounts of each partner are closed to their individual capital accounts, not to retained earnings, which is a term used in corporations.

Question 13

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

Accepted Answer

Salaries paid to partners are not considered expenses on the income statement because partners are considered owners of the business rather than employees. Their share of the profits and losses is reported on the income statement.

Question 14

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

Accepted Answer

The statement of changes in equity shows changes in a company's equity during a period, including the beginning and ending balances of equity, but investments and partners' withdrawals specifically pertain to partnerships and are not typically part of a corporation's retained earnings calculation. Retained earnings changes reflect net income or loss and dividends paid, not partners' withdrawals.

Question 15

Salary and interest allowances are reported as expenses on a partnership income statement.

Accepted Answer

Salary and interest allowances to partners are not reported as expenses on a partnership income statement; instead, they are distributions of profit and are accounted for separately from the partnership's operational expenses.

Question 16

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

Accepted Answer

In closing the partnership accounts, the partners' capital accounts are debited for their share of the net loss and credited for their share of the profit.

Question 17

A partnership has unlimited life.

Accepted Answer

A partnership is not a separate legal entity and is dissolved when one of the partners withdraws, passes away, or the partnership agreement is terminated. Therefore, it does not have unlimited life.

Question 18

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

Accepted Answer

A partnership is defined as a business entity where two or more individuals contribute capital, expertise, and labor to carry on a business venture in order to make a profit as co-owners. It is not a separate legal entity and the partners have unlimited liability for the partnership's debts and obligations.

Question 19

If there is no partnership agreement,the law requires that profits or losses are divided among partners in the ratio of their capital investments.

Accepted Answer

In the absence of a partnership agreement, the law typically requires that profits or losses be divided equally among partners, regardless of the ratio of their capital investments.

Question 20

The equity section of the balance sheet of a partnership usually shows the individual capital account balance of each partner.

Accepted Answer

The equity section of a partnership's balance sheet typically includes the individual capital account balances of each partner, as well as any other equity accounts such as retained earnings or distributions.

Quiz 3: Partnerships