Question 1

An advantage of partnerships is mutual agency.

Accepted Answer

False

Question 2

In a limited partnership, one or more partners have limited liability for the debts of the firm.

Accepted Answer

In a limited partnership, there are general partners with unlimited liability and limited partners whose liability is restricted to their investment in the firm.

Question 3

In a limited liability partnership, a partner cannot be held liable for the negligence of the people directly supervised by that partner.

Accepted Answer

In a limited liability partnership, a partner can be held liable for the negligence of those they directly supervise, as they have a duty to ensure proper conduct and oversight.

Question 4

In a partnership where the division of profits and losses is based on salaries, interest, and a stated ratio, if the salary and interest allocation will exceed the profit, the profit is allocated only by the stated ratio instead.

Accepted Answer

In such a partnership, if the salary and interest allocation exceeds the profit, the loss is typically allocated according to the agreed terms, which may include the stated ratio, but not exclusively by it.

Question 5

A partnership is considered an accounting entity for financial reporting purposes.

Accepted Answer

A partnership is treated as a separate accounting entity from its partners for financial reporting, allowing it to have its own financial statements.

Question 6

When the partnership contract does not specify the manner in which profits and losses are to be divided, profits and losses are distributed based on the average capital balances of each partner during the year.

Accepted Answer

When a partnership contract does not specify how profits and losses are to be divided, they are typically shared equally among the partners, unless otherwise agreed upon.

Question 7

The statement of partners' capital explains the changes in each partner's capital account and in total partnership capital during the year.

Accepted Answer

The statement of partners' capital details the changes in each partner's capital account, including contributions, withdrawals, and share of profits or losses, reflecting the total partnership capital changes over the year.

Question 8

Admission of a new partner to the partnership does not result in the legal dissolution of the existing partnership.

Accepted Answer

The admission of a new partner typically results in the legal dissolution of the existing partnership and the formation of a new partnership, as the original agreement is altered.

Question 9

If a partnership is admitting a new partner to the existing partnership and the existing partners are to receive a bonus, this bonus would be allocated on the basis of their profit and loss ratios before the admission of the new partner.

Accepted Answer

The bonus to existing partners is typically allocated based on their existing profit and loss sharing ratios before the new partner is admitted.

Question 10

Upon liquidation, once the assets have been sold and the creditors paid, the final cash is distributed equally among partners.

Accepted Answer

The final cash is distributed according to the partnership agreement, which may not necessarily be equal among partners.

Question 11

Which one of the following is not a feature of partnerships?

Accepted Answer

Partnerships have unlimited liability, meaning partners are personally liable for the debts of the business, unlike corporations which have limited liability.

Question 12

B invests $60,000 for a 25% interest in a partnership that has total capital of $200,000 after admitting B. Which of the following is true?

Accepted Answer

B's investment of $60,000 for a 25% interest implies the total partnership capital should be $240,000 (since $60,000 is 25% of $240,000). However, the total capital is only $200,000, indicating that the original partners received a bonus of $10,000, as B's investment increased the total capital by less than expected.

Question 13

Partners A and B receive a salary allowance of $12,000 and $18,000, respectively, and share the remainder equally. If the company earned $20,000 during the period, what is the effect on A's capital?

Accepted Answer

The remainder after salary allowances is $20,000 - $12,000 - $18,000 = $0. A's share of the remainder is $0 / 2 = $0. A's capital increases by $0 + $12,000 = $12,000.

Question 14

After selling the assets and paying the creditors, the partnership had $90,000 cash remaining. A, B, and C had capital balances of $20,000, $30,000 and $40,000 respectively. Profit is shared on a ratio of 1:3:5, respectively. The cash to be received by partner C would be:

Accepted Answer

Partner C's capital balance is $40,000, and since there is enough cash to cover all capital balances, C will receive the full $40,000.

Question 15

Selling partnership assets and paying the proceeds to creditors and owners refers to:

Accepted Answer

Liquidation refers to the process of selling partnership assets and distributing the proceeds to creditors and owners.

Question 16

ABC Partnership has a profit of $150,000 for the year ended December 31, 2011. The partnership agreement states that profit and losses are to be distributed using salary allowances, interest allowances, and a ratio for the remainder. Information about the agreement and the balance of the Drawings accounts is contained in the table below.
  (a) Prepare a detailed schedule to show how the profit would be allocated among the three partners.
(b) Assume that the revenue and expense accounts have been closed. Prepare the remaining closing entries.

Accepted Answer

The answer of ABC Partnership has a profit of $150,000...

Question 17

On July 1, the Duncan & Evan partnership agreed to admit Foster to the partnership. Foster will receive a 40% share of the business for a cash investment of $200,000. Information regarding the partnership records prior to the admission of Foster is located in the table.
  Prepare the journal entry to admit Foster into the partnership. Show calculations.

Accepted Answer

The answer of On July 1, the Duncan & Evan...

Question 18

Define Limited Partnerships and Limited Liability Partnerships, indicating the difference between the two.

Accepted Answer

The answer of Define Limited Partnerships and Limited Liability Partnerships,...

Quiz 12: Accounting for Partnerships