Question 1

Which of the following is not a characteristic of a partnership?

Accepted Answer

Partnership income is not subject to a federal income tax that is levied on the business. Instead, the income is allocated to the partners based on their ownership interest, and each partner reports their share of the income on their individual tax return. This means that the partnership itself does not pay federal income tax, but the partners do.

Question 2

Ryan Fuller,a sole proprietor,entered into partnership with another individual.Fuller's investment in the partnership included equipment that cost $32,000 when it was purchased.The equipment has a book value of $13,000 and a net agreed-on value of $16,000.In the financial records of the partnership,this equipment and its accumulated depreciation should be recorded at

Accepted Answer

The equipment should be recorded at the net agreed-on value of $16,000, and since this is the value agreed upon for the partnership, the accumulated depreciation is not recorded separately.

Question 3

A partnership ____________________ occurs when the partnership's assets are sold,debts are paid off,and the remaining cash is distributed to the partners.

Accepted Answer

The answer of A partnership ____________________ occurs when the partnership's...

Question 4

If a partnership's net income is in excess of the salary and interest allowances,the entry to close Income Summary after the allowances are recorded will include a(n)____________________ to Income Summary.

Accepted Answer

The answer of If a partnership's net income is in...

Question 5

The financial statement prepared to summarize the changes in partner's capital accounts is the __________________________.

Accepted Answer

The answer of The financial statement prepared to summarize the...

Question 6

The amount that each partner withdraws from a partnership

Accepted Answer

The partnership agreement should specify how profits and losses will be allocated among the partners and how much each partner may withdraw from the partnership. While the amount withdrawn may be based on the net income, it is not necessarily determined solely by this factor. Ultimately, the agreement should clearly outline the rights and obligations of each partner in terms of financial transactions.

Question 7

When dividing partnership net income,the consideration given to the amount of time a partner devotes to the business is called a salary ___________________.

Accepted Answer

The answer of When dividing partnership net income,the consideration given...

Question 8

If an individual invests more cash for an interest in an existing partnership than the book value of his or her interest,the old partners are said to receive a(n)___________________.

Accepted Answer

The answer of If an individual invests more cash for...

Question 9

Which of the following statements is not correct?

Accepted Answer

Partnerships themselves are not subject to federal income tax; instead, the income is passed through to the individual partners, who then report it on their personal tax returns.

Question 10

When the owner of a sole proprietorship accepts a partner,the assets of the proprietorship

Accepted Answer

When the owner of a sole proprietorship accepts a partner, the assets of the proprietorship may be adjusted to reflect current values before being transferred to the partnership. This allows for a fair and accurate evaluation of the assets and ensures that the new partner is investing in the partnership at an appropriate value. Option A is incorrect because the transfer of assets should reflect current values, not the values reflected in the financial records of the proprietorship. Option B is incorrect because the assets do not necessarily need to be converted to cash to pay debts and excess cash is not always available for investment in the new partnership. Option C is incorrect because the assets may be invested in the new partnership.

Question 11

Which of the following statements is correct?

Accepted Answer

The financial records of a new partnership are indeed opened with a memorandum entry in the general journal. This memorandum entry does not require a debit or credit entry; instead, it simply announces the formation of the partnership and lists the contributions made by each partner. This entry does not affect the balances of any accounts in the general ledger. Option A is incorrect because the general ledger of a partnership will include a separate capital account for each partner, reflecting the contribution and share of profits and losses of that partner. Option B is incorrect because past-due accounts receivable should be transferred from the financial records of a sole proprietorship to a newly formed partnership, as they are assets of the business that are being transferred. Option D is incorrect because a new partner may purchase the partnership interest of another partner, but it is not a requirement.

Question 12

If a partnership's salary and interest allowances are in excess of the net income,the entry to close Income Summary after the allowances are recorded will include a(n)____________________ to Income Summary.

Accepted Answer

The answer of If a partnership's salary and interest allowances...

Question 13

The entry to record the investment of cash in a partnership by one partner would consist of a debit to

Accepted Answer

When a partner invests cash in the partnership, the partner's capital account is credited to reflect the increase in the partner's ownership interest in the partnership. Therefore, the entry would be a debit to Cash and a credit to the partner's capital account. Choice A is incorrect because there is no need to credit the partner's capital account again. Choice B is incorrect because Partners' Equities is not a standard account title used in partnership accounting. Choice D is incorrect because a drawing account is used to record withdrawals by a partner and not investments.

Question 14

The statement of partners' equities summarizes the changes in the partners' _________________ accounts in an accounting period.

Accepted Answer

The answer of The statement of partners' equities summarizes the...

Question 15

Federal income tax is levied on

Accepted Answer

Federal income tax on a partnership is levied on the individual partners based on their share of the partnership income, rather than on the partnership as a whole. This is known as pass-through taxation, where the partnership itself is not taxed, but the income is taxed when it passes through to the partners' individual tax returns.

Question 16

Smith contributed $15,000 cash while J.West contributed $20,000 cash and office equipment costing $14,000 currently valued at $12,000 to a new partnership.The journal entry to record the partnership investments of Smith and West is

Accepted Answer

The answer of Smith contributed $15,000 cash while J.West contributed...

Question 17

Robert Ballard,a sole proprietor,entered into partnership with another individual.Ballard's investment in the partnership included equipment that cost $64,000 when it was purchased.The equipment has a book value of $26,000 and a net agreed-on value of $32,000.In the financial records of the partnership,this equipment and its accumulated depreciation should be recorded at

Accepted Answer

Only the net agreed-on value of the equipment should be recorded in the partnership's records. Since the net agreed-on value is $32,000, this is the amount that should be recorded. The accumulated depreciation is not recorded in the partnership's records because it represents the portion of the equipment's cost that has already been expensed in prior periods. Therefore, the answer is C: $32,000 and $0.

Question 18

When a partner submits personal living expenses for company reimbursement and the expense is reflected as a reduction of period profits,the company has violated the

Accepted Answer

The separate entity assumption states that a business's financial transactions should be kept separate from the personal transactions of its owners or partners.

Question 19

On November 1,Jackson and Kiln formed a partnership with Jackson contributing land valued at $100,000 and a building valued at $125,000.Kiln contributed $55,000 in cash.The partnership assumed the mortgage on Jackson's property of $85,000.Profits and losses are to be shared equally.What are the balances of the partner's capital accounts after recording these transactions?

Accepted Answer

Jackson contributed a total of $225,000 ($100,000 + $125,000) worth of assets but the partnership assumed the mortgage of $85,000, so Jackson's net contribution is $140,000. Kiln contributed $55,000 in cash. Since profits and losses are shared equally, the initial capital balance for each partner would be $97,500 (($140,000-$85,000)/2) for Jackson and $97,500 (($55,000)/2) for Kiln. Therefore, the balances of the partners' capital accounts after recording these transactions would be:

Jackson: $140,000 (initial capital balance) + $97,500 (net contribution) = $237,500

Kiln: $97,500 (initial capital balance) + $55,000 (net contribution) = $152,500

Therefore, the correct answer is option C: Jackson: $140,000 and Kiln: $55,000.

Question 20

The financial statement that shows the division of profits and losses among partners is the _______________.

Accepted Answer

The answer of The financial statement that shows the division...

Quiz 19: Accounting for Partnerships