ACC/206 Accounting Principles II Week 4 Quiz – Strayer

 ACC 206 Week 4 Quiz

CHAPTER 12

ACCOUNTING FOR PARTNERSHIPS

 

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

 

b. Association of individuals c. Limited liability

d. Limited life

 

 

45.     The partnership agreement should include each of the following except the a. date of the partnership inception.

b. principal location of the firm.

 

c. surviving family members in the event of a partner's death. d. Each of these should be included.

 

46.     Which of the following statements is true regarding the form of a legally binding partnership contract?

a. The partnership contract must be in writing.

 

b. The partnership contract may be based on a handshake. c. The partnership contract may be implied.

d. The partnership contract cannot be oral.

 

 

47.     Which of the following statements about a partnership is correct?

 

a. The personal assets of a partner are included in the partnership accounting records. b. A partnership is not required to file an information tax return.

c. Each partner's share of income is taxable to the partnership.

 

d. A partnership represents an accounting entity for financial reporting purposes.

 

 

48.     In a partnership, mutual agency means

 

a. each partner acts on his own behalf when engaging in partnership business.

 

b. the act of any partner is binding on all other partners, only if partners act within their cope of authority.

c. an act by a partner is judged as binding on other partners depending on whether the act appears to be appropriate for the partnership.

d. that partners must pay taxes on a mutual or combined basis.

12 - 8      Test Bank for Accounting Principles, Eighth Edition

 

 

49.     A partnership

 

a. is dissolved only by the withdrawal of a partner.

 

b. is dissolved upon the acceptance of a new partner. c. dissolution means the business must liquidate.

d. has unlimited life.

 

 

50.     The partner in a limited partnership that has unlimited liability is referred to as the a. lead partner.

b. head partner.

 

c. general partner. d. unlimited partner.

 

51.     Limited partnerships

 

a. must have at least one general partner.

 

b. guarantee that a partner will receive a return.

 

c. guarantee that a partner will get back his original investment. d. are limited to only three partners.

 

52.     The Maris-Crane partnership is terminated when creditor claims exceed partnership assets by $40,000. Crane is a millionaire and Maris has no personal assets. Maris' partnership interest is 75% and Crane's is 25%. Creditors

a. must collect their claims equally from Maris and Crane. b. may collect the entire $40,000 from Crane.

c. must collect their claims 75% from Maris and 25% from Crane.

 

d. may not require Crane to use his personal assets to satisfy the $40,000 in claims.

 

 

53.     Which of the following statements about partnerships is incorrect? a. Partnership assets are co-owned by partners.

b. If a partnership is terminated, the assets do not legally revert to the original contributor. c. If the partnership agreement does not specify the manner in which net income is to be

shared, it is distributed according to capital contributions.

 

d. Each partner has a claim on assets equal to the balance in the partner's capital account.

 

54.     Which of the following is not an advantage of the partnership form of business? a. Mutual agency

b. Ease of formation

 

c. Ease of decision making

 

d. Freedom from governmental regulations and restrictions

 

 

55.     The largest companies in the United States are primarily organized as a. limited partnerships.

b. partnerships. c. corporations.

d. proprietorships.

 

 

56.     The basis for dividing partnership net income or net loss is referred to as any of the following except the

a. income ratio.

 

b. income and loss ratio. c. profit and loss ratio. d. income sharing ratio.

Accounting for Partnerships      12 - 9

 

 

57.     Which of the following statements is incorrect regarding partnership agreements? a. It may be referred to as the “articles of co-partnership.”

b. Oral agreements are preferable to written articles.

 

c. It should specify the different relationships that are to exist among the partners. d. It should state procedures for submitting disputes to arbitration.

 

58.     Norton invests personally owned equipment, which originally cost $110,000 and has accumulated depreciation of $30,000 in the Norton and Kennett partnership. Both partners agree that the fair market value of the equipment was $60,000. The entry made by the partnership to record Norton's investment should be

a. Equipment............................................................................       110,000 Accumulated Depreciation—Equipment......................                             30,000 Norton, Capital.............................................................                             80,000

b. Equipment............................................................................         80,000

 

Norton, Capital.............................................................                             80,000 c. Equipment............................................................................        60,000

Loss on Purchase of Equipment ..........................................         20,000 Accumulated Depreciation—Equipment...............................                                                      30,000

Norton, Capital.............................................................                           110,000 d. Equipment............................................................................        60,000

Norton, Capital.............................................................                             60,000

 

 

59.     Partner B is investing in a partnership with Partner A. B contributes as part of his initial investment, Accounts Receivable of $80,000; an Allowance for Doubtful Accounts of $12,000; and $8,000 cash. The entry that the partnership makes to record B's initial contribution includes a

a. credit to B, Capital for $88,000.

 

b. debit to Accounts Receivable for $68,000. c. credit to B, Capital for $76,000.

d. debit to Allowance for Doubtful Accounts for $12,000.

 

 

60.     Which of the following would not be recorded in the entry for the formation of a partnership?

a. Accumulated depreciation

 

b. Allowance for doubtful accounts c. Accounts receivable

d. All of these would be recorded.

 

 

61.     Bob is investing in a partnership with Jerry. Bob contributes equipment that originally cost $63,000, has a book value of $30,000, and a fair market value of $39,000. The entry that the partnership makes to record Bob's initial contribution includes a

a. debit to Equipment for $33,000. b. debit to Equipment for $63,000. c. debit to Equipment for $39,000.

d. credit to Accumulated Depreciation for $33,000.

 

 

62.     A partner contributes, as part of her initial investment, accounts receivable with an allowance for doubtful accounts. Which of the following reflects a proper treatment?

12 - 10 Test Bank for Accounting Principles, Eighth Edition

 

 

a. The balance of the accounts receivable account should be recorded on the books of the partnership at its net realizable value.

b. The allowance account may be set up on the books of the partnership because it relates to the existing accounts that are being contributed.

c. The allowance account should not be carried onto the books of the partnership.

 

d. The accounts receivable and allowance should not be recorded on the books of the partnership because a partner must invest cash in the business.

 

63.     Which one of the following would not be considered an expense of a partnership in determining income for the period?

a. Expired insurance

 

b. Salary allowance to partners c. Supplies used

d. Freight-out

 

 

64.     A partner invests into a partnership a building with an original cost of $90,000 and accumulated depreciation of $40,000. This building has a $70,000 fair market value. As a result of the investment, the partner’s capital account will be credited for

a. $70,000. b. $50,000. c. $90,000. d. $120,000.

 

Use the following information for questions 65–67.

 

 

James and Laura are forming a partnership. James will invest a truck with a book value of $10,000 and a fair market value of $14,000. Laura will invest a building with a book value of $30,000 and a fair market value of $42,000 with a mortgage of $15,000.

 

65.     At what amount should the building be recorded? a. $30,000

b. $27,000 c. $42,000 d. $45,000

 

66.     What amount should be recorded in Laura’s capital account? a. $30,000

b. $27,000 c. $42,000 d. $14,000

 

67.     What amount should be recorded in James’ capital account? a. $30,000

b. $27,000 c. $42,000 d. $14,000

 

68.     Speir and Pablo decide to organize a partnership. Speir invests $15,000 cash, and Pablo contributes $12,000 cash and equipment having a book value of $6,000. Choose the entry to record Pablo’s investment in the partnership assuming the equipment has a fair market value of $9,000.

Accounting for Partnerships    12 - 11

 

 

a. Cash.....................................................................................          12,000 Equipment ...........................................................................          6,000

Pablo, Capital .............................................................                              18,000 b. Equipment ...........................................................................          6,000

Pablo, Capital .............................................................                                6,000 c. Cash.....................................................................................        12,000

Pablo, Capital .............................................................                              12,000 d. Cash.....................................................................................        12,000

Equipment ...........................................................................           9,000

 

Pablo, Capital .............................................................                              21,000

 

 

 

Use the following information for questions 69–71.

 

 

Partners Abel and Cain have capital balances in a partnership of $40,000 and $60,000, respectively. They agree to share profits and losses as follows:

 Abel         Cain

 

As salaries                                                                         $10,000                 $12,000 As interest on capital at the beginning of the year                  10%                        10% Remaining profits or losses                                                      50%                        50%

 

69.     If income for the year was $50,000, what will be the distribution of income to Cain? a. $23,000

b. $27,000 c. $20,000 d. $10,000

 

70.     If income for the year was $30,000, what will be the distribution of income to Abel? a. $13,000

b. $77,000 c. $10,000 d. $14,000

 

71.     If net loss for the year was $2,000, what will be the distribution to Cain? a. $12,000 income

b. $1,000 income c. $1,000 loss

d. $2,000 loss


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ACC 206 Accounting Principles II Week 4 Quiz – Strayer

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