Question 1

The partner capital accounts may change due to capital additions, net income, or withdrawals.

Accepted Answer

The partner capital accounts can change due to various reasons such as capital contributions, share of net income or loss, and withdrawals.

Question 2

In a partnership liquidation, if a partner has a debit capital balance in his or her capital account, he or she is responsible for contributing personal assets sufficient to eliminate the deficit.

Accepted Answer

This is true. Partners with debit capital balances are responsible for contributing personal assets to cover the deficit in the partnership.

Question 3

An advantage of the partnership form of business organization is

Accepted Answer

Partnerships are generally easier to form than corporations, as they require less paperwork and legal formalities. This ease of formation is considered an advantage of the partnership form of business organization.

Question 4

Revenue per employee may be used to measure partnership 
(LLC) efficiency.

Accepted Answer

Revenue per employee is a common metric used to measure the efficiency of a business, including partnerships (LLCs). It shows how much revenue each employee generates, indicating the level of productivity and performance of the company.

Question 5

In the liquidating process, any uncollected cash becomes a loss to the partnership and is divided among the remaining partners' capital balances based on their income-sharing ratio.

Accepted Answer

This statement is true. When a partnership is liquidated, any uncollected cash is considered a loss to the partnership and is divided among the remaining partners based on their income-sharing ratio. This is because the partners share both the profits and losses of the partnership according to their agreed-upon ratio.

Question 6

The process of winding up the affairs of a partnership is referred to as realization.

Accepted Answer

The process of winding up the affairs of a partnership is referred to as dissolution. Realization refers to the conversion of assets into cash during the dissolution process.

Question 7

Which of the following is a characteristic of a general partnership?

Accepted Answer

In a general partnership, the partners have co-ownership of partnership property, meaning they share ownership and control of the assets and liabilities of the partnership. However, they do not have limited liability, which is a characteristic of a different type of business entity such as a limited liability partnership (LLP) or a limited liability company (LLC). General partnerships are also pass-through entities, meaning the profits and losses are reported on the individual partners' tax returns rather than the partnership itself being subject to federal income tax. Additionally, general partnerships do not have an unlimited life, as the partnership dissolves upon the death or withdrawal of one of the partners.

Question 8

Which of the following is a disadvantage of a partnership when compared to a corporation?

Accepted Answer

A partnership has a limited life because it is tied to the life of its partners. If one of them leaves or dies, the partnership is dissolved. This is a disadvantage compared to a corporation, which has perpetual existence.

Question 9

After all noncash assets have been converted to cash and all liabilities paid, A, B, and C have capital balances of $10,000 
(debit), $5,000 
(debit), and $25,000 
(credit). The cash available for distribution to the partners is $10,000.

Accepted Answer

The total capital balance for the partnership is $20,000 in debit and $25,000 in credit, leaving a net credit of $5,000. After paying off all liabilities and converting noncash assets to cash, the partners are left with $10,000. The remaining cash will be distributed based on each partner's capital balance, so A will receive $4,000, B will receive $2,000, and C's credit balance will be reduced to $20,000.

Question 10

The statement of members' equity is used for equity reporting of a partnership.

Accepted Answer

The answer of The statement of members' equity is used...

Question 11

If a partner's capital balance is a debit after it has absorbed its share of the loss on realization, the balance is referred to as a deficiency.

Accepted Answer

If a partner's capital balance is a debit after absorbing its share of the loss on realization, it indicates that the partner's capital contribution was not enough to cover his or her share of the loss. In this case, the balance is referred to as a deficiency.

Question 12

If the share of losses on realization of the sale of noncash assets exceed the balance in a partner's capital account, the resulting balance is called a deficiency.

Accepted Answer

This statement is true. When the share of losses on realization of the sale of noncash assets exceeds the balance in a partner's capital account, the resulting balance is a deficiency, which means that the partner owes money to the partnership.

Question 13

The equity reporting for a limited liability company is similar to that of a partnership, but the changes in capital are shown on a statement of members' equity.

Accepted Answer

The equity reporting for a limited liability company is indeed similar to that of a partnership, but the changes in capital are shown on a statement of members' equity.

Question 14

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

Accepted Answer

Dissolution may occur upon the occurrence of certain events, such as the death or withdrawal of a partner, even if not all partners agree. Therefore, D is not a characteristic of a general partnership.

Question 15

Which of the following is an advantage of a general partnership when compared to a corporation?

Accepted Answer

General partnerships are relatively inexpensive to organize compared to corporations, which require more legal and administrative procedures to set up. The other options are not advantages of general partnerships over corporations.

Question 16

The characteristic of a partnership that gives the authority to any partner to legally bind the partnership and all other partners to business contracts is called

Accepted Answer

Mutual agency is the characteristic of a partnership that gives any partner the authority to legally bind the partnership and all other partners to business contracts. This means that each partner has the power to act on behalf of the partnership, and any obligations or agreements entered into by one partner are binding on all partners.

Question 17

Dissolution is the term that solely means to liquidate the partnership.

Accepted Answer

Dissolution refers to the process of ending or terminating a partnership, but it does not solely mean to liquidate the partnership. It can involve reorganizing or restructuring without necessarily liquidating.

Question 18

In a partnership liquidation, gains and losses on the sale of partnership assets are divided among the partners' capital accounts on the basis of their capital balances.

Accepted Answer

Gains and losses on the sale of partnership assets during liquidation are divided among the partners according to their profit and loss sharing ratio, not based on their capital balances.

Question 19

The chart of accounts for a partnership, with the exception of additional drawing and capital accounts, does not differ from the chart of accounts for a sole proprietorship.

Accepted Answer

The chart of accounts for a partnership includes accounts for each partner's capital account, as well as a drawing account for each partner to track withdrawals from the business. However, the basic accounts used to track income, expenses, assets, and liabilities are the same as those used for a sole proprietorship.

Question 20

The distribution of cash, as the final process in winding up the affairs of a partnership, is based on the income-sharing ratio.

Accepted Answer

The distribution of cash in the final process of winding up a partnership is based on the final balances in the partners' capital accounts after all assets have been liquidated and all liabilities have been paid, not on the income-sharing ratio.

Quiz 12: Accounting for Partnerships and Limited Liability Companies