ACC 206 Week 4 Quiz – Strayer

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Quiz 3 Chapter 12

CHAPTER 12

ACCOUNTING FOR PARTNERSHIPS

CHAPTER STUDY OBJECTIVES

1. Identify the characteristics of the partnership form of business organization.

2. Explain the accounting entries for the formation of a partnership.

3. Identify the bases for dividing net income or net loss.

4. Describe the form and content of partnership financial statements.

5. Explain the effects of the entries to record the liquidation of a partnership.

6. Explain the effects of the entries when a new partner is admitted.

7. Describe the effects of the entries when a partner withdraws from the firm.

TRUE-FALSE STATEMENTS

1.     The personal assets, liabilities, and personal transactions of partners are excluded from the accounting records of the partnership.

2.     The act of any partner is binding on all other partners if the act appears to be appropriate for the partnership.

3.     A major advantage of the partnership form of organization is that the partners have unlimited liability.

4.     Partnership creditors may have a claim on the personal assets of any of the partners if the partnership assets are not sufficient to settle claims.

5.     The partnership agreement between partners must be in writing.

6.     If a partner invests noncash assets in a partnership, they should be recorded by the partnership at their fair market value.

7.     L. Hill invests the following assets in a new partnership: $15,000 in cash, and equipment that cost $30,000 but has a book value of $17,000 and fair market value of $20,000. Hill, Capital will be credited for $32,000.

8.     Two proprietorships cannot combine and form a partnership.

9.     If a partner's investment in a partnership consists of equipment that has accumulated depreciation of $8,000, it would not be appropriate for the partnership to record the accumulated depreciation.

10.     If a partner's investment in a partnership consists of Accounts Receivable of $25,000 and an Allowance for Doubtful Accounts of $7,000, it would not be appropriate for the partnership to record the Allowance for Doubtful Accounts.

11.     Unless stated otherwise in the partnership contract, profits and losses are shared among the partners in the ratio of their capital equity balances.

12.     If salary allowances and interest on capital are stipulated in the partnership profit and loss sharing agreement, they are implemented only if income is sufficient to cover the amounts required by these features.

13.     Unless the partnership agreement specifically indicates an income ratio, partnership net income or loss is not allocated to the partners.

Accounting for Partnerships       12 - 5

14.     Partnership income or loss need not be closed to partners' capital accounts each period because of the unlimited life characteristic of partnerships.

15.     If a partnership has a loss for the period, the closing entry to transfer the loss to the partners will require a credit to the Income Summary account.

16.     The partners' drawing accounts are closed each period into the Income Summary account.

17.     Salary allowances to partners are a major expense on most partnership income statements.

18.     An interest allowance in sharing partnership net income (or net loss) is related to the amount of partners' invested capital during the period.

19.     The financial statements of a partnership are similar to those of a proprietorship.

20.     The income earned by a partnership will always be greater than the income earned by a proprietorship because in a partnership there is more than one owner contributing to the success of the business.

21.     The function of the Partners' Capital Statement is to explain the changes in partners' capital account balances during a period.

22.     A detailed listing of all the assets invested by a partner in a partnership appears on the Partners' Capital Statement.

23.     Total partners' equity of a partnership is equal to the sum of all partners' capital account balances.

24.     The distribution of cash to partners in a partnership liquidation is always made based on the partners' income sharing ratio.

25.     The liquidation of a partnership means that a new partner has been admitted to the partnership.

a26.     The admission of a new partner results in the legal dissolution of the existing partnership and the beginning of a new partnership.

a27.     If a new partner is admitted into a partnership by investment, the total assets and total capital will change.

a28.     A bonus to old partners results when the new partner's capital credit on the date of admittance is greater than his or her investment in the firm.

a29.     If a new partner invests in a partnership at book value and acquires a 1/4 interest in total partnership capital, it indicates that a bonus was paid to the original partners.

a30.     A bonus to the remaining partners results when a retiring partner receives partnership assets which are less than his or her capital balance on the date of withdrawal.

Additional True-False Questions

31.     A partnership is an association of no more than two persons to carry on as co-owners of a business for profit.

32.     Once assets have been invested in the partnership, they are owned jointly by all partners.

33.     Each partner's initial investment in a partnership should be recorded at book value.

34.     Partnership income is shared in proportion to each partner's capital equity interest unless the partnership contract specifically indicates the manner in which net income or net loss is to be divided.

35.     In a liquidation, the final distribution of cash to partners should be on the basis of their income ratios.

a36.     In an admission of a partner by investment of assets, the total net assets and total capital of the partnership do not change.

a37.     The withdrawal of a partner legally dissolves the partnership.

MULTIPLE CHOICE QUESTIONS

38.     A hybrid form of business organization with certain features like a corporation is a(n) a. limited liability partnership.

b. limited liability company. c. "S" corporation.

d. sub-chapter "S" corporation.

39.     A partnership

a. has only one owner.

b. pays taxes on partnership income. c. must file an information tax return.

d. is not an accounting entity for financial reporting purposes.

40.     A general partner in a partnership

a. has unlimited liability for all partnership debts. b. is always the general manager of the firm.

c. is the partner who lacks a specialization.

d. is liable for partnership liabilities only to the extent of that partner's capital equity.

Accounting for Partnerships       12 - 7

41.     The individual assets invested by a partner in a partnership a. revert back to that partner if the partnership liquidates.

b. determine that partner's share of net income or loss for the year. c. are jointly owned by all partners.

d. determine the scope of authority of that partner.

42.     Which one of the following would not be considered a disadvantage of the partnership form of organization?

a. Limited life

b. Unlimited liability c. Mutual agency

d. Ease of formation

43.     The partnership form of business is

a. restricted to law and medical practices.

b. restricted to firms having fewer than 10 partners. c. not restricted to any particular type of business. d. most often used in relatively large companies.

44.     Which of the following is not a principal characteristic of the partnership form of business organization?

a. Mutual agency