Question 1

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 also involve reorganizing or restructuring the partnership without necessarily liquidating its assets.

Question 2

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

This is true. If a partner's capital balance is less than zero (i.e. a debit balance) after the partnership has realized a loss, it is called a deficiency. This means that the partner owes more to the partnership than they have invested.

Question 3

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 is similar to a sole proprietorship, with the addition of drawing accounts and separate capital accounts for each partner.

Question 4

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. A partner with a debit balance in their capital account (indicating they owe more to the partnership than they have invested) is responsible for contributing personal assets to make up the deficit. This is part of the process of liquidating the partnership, which involves each partner's capital account being settled and any remaining assets being distributed.

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 being liquidated, any uncollected cash or unpaid debts become a loss to the partnership. This loss is divided among the remaining partners' capital balances based on their income-sharing ratio.

Question 6

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

Accepted Answer

General partnerships are typically easier and less expensive to organize than corporations. Corporations require more formalities and legal documents to be filed with the state. While partnerships do not offer limited liability protection like corporations, they may have tax advantages and are not subject to the same level of regulation. However, there is no evidence to suggest that partnerships are more likely to have a positive net income compared to corporations, nor do partnerships commonly hire professional managers.

Question 7

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 8

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 partners' capital account balances after all assets have been liquidated and all liabilities have been paid, not on the income-sharing ratio.

Question 9

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, not realization. Realization typically refers to the conversion of assets into cash.

Question 10

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 partnership (LLC) as it gives an indication of how much revenue is generated per employee. The higher the revenue per employee, the more efficiently the business is using its resources.

Question 11

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

Accepted Answer

A partnership has a limited life as it is dissolved when one partner dies or chooses to leave the partnership. In contrast, a corporation has perpetual existence as it can continue to exist even if its founders or shareholders pass away or leave. This is a disadvantage for partnerships as it can result in the need to constantly reorganize the business when a partner departs.

Question 12

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 13

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 is seen as an agent of the partnership, and their actions and decisions can impact the entire business. Unlimited liability refers to the potential personal financial responsibility of the partners for the debts and obligations of the partnership. Ease of formation refers to the relative simplicity of establishing a partnership compared to other forms of business ownership. Dissolution refers to the process of ending a partnership.

Question 14

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 capital balances of A, B, and C add up to $30,000 in total ($10,000 debit + $5,000 debit - $25,000 credit = $30,000). If all noncash assets have been converted to cash and all liabilities have been paid, then the remaining cash of $10,000 will be distributed among the partners based on their capital balances. A's capital balance of $10,000 is 1/3 of the total, so A would receive $3,333.33. B's capital balance of $5,000 is 1/6 of the total, so B would receive $1,666.67. C's capital balance of $25,000 credit means he owes the partnership that amount, so he would not receive any cash distribution. The total cash distribution of $5,000 ($3,333.33 + $1,666.67 + $0) plus each partner's remaining capital balance ($0 for A and B, -$25,000 for C) would equal zero, indicating that all assets have been distributed and all liabilities have been paid off.

Question 15

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. This means that they share ownership, control, and responsibility for the assets and liabilities of the partnership, as well as any profits or losses. However, they also have unlimited personal liability for the debts and obligations of the partnership.

Question 16

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

Accepted Answer

Dissolution can occur in a general partnership without the unanimous agreement of all partners in certain circumstances, such as the death or bankruptcy of one partner.

Question 17

An advantage of the partnership form of business organization is

Accepted Answer

Partnerships are generally easier to form compared to corporations, as they require less paperwork and can often be established based on informal agreements or a simple partnership agreement. This ease of formation is a significant advantage of the partnership form of business organization.

Question 18

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 statement of members' equity is used to report changes in capital for a limited liability company, similar to how a partnership uses a statement of partners' equity. Therefore, the statement of members' equity is the equivalent of the statement of partners' equity.

Question 19

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

Accepted Answer

The partner capital accounts can change due to these factors. Capital additions refer to the investment of additional capital by the partners, net income refers to the profits earned by the partnership, and withdrawals refer to the amounts taken out by the partners for personal use or expenses.

Question 20

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

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 called a deficiency.

Quiz 12: Accounting for Partnerships and Limited Liability Companies