Appendix D Reporting and Analyzing Partnerships Answer Key
True / False Questions
1.
A partnership has a limited life.
2.
A partnership is an incorporated association of two or more people to pursue a business
for profit as co-owners.
3.
Mutual agency means each partner can commit or bind the partnership to any contract
within the scope of the partnership business.
4.
Accounting procedures for both C corporations and S corporations are the same in all
aspects.
5.
Partners in a partnership are taxed on the partnership income, not the amounts they
withdraw from the partnership.
6.
Limited liability partnerships are designed to protect innocent partners from malpractice or
negligence claims resulting from the acts of another partner.
7.
A partnership may allocate salary allowances to the partners reflecting the relative value
of services provided.
8.
In a limited partnership the general partner has unlimited liability.
9.
Partner return on equity can be used by each partner to help decide whether additional
investment or withdrawal of resources is best for that partner.
10.
Feldt is a partner in Feldt & Dodson Company. Feldt’s share of the partnership income is
$18,600 and her average partnership equity is $155,000. Her partner return on equity
equals 8.33.
11.
When partners invest in a partnership, their capital accounts are debited for the amount
invested.
12.
Partners’ withdrawals are debited to their separate withdrawals accounts.
13.
Partners can invest assets but not liabilities into a partnership.
14.
The withdrawals account of each partner is closed to retained earnings at the end of the
accounting period.
15.
In closing the accounts at the end of a period, the partners’ capital accounts are credited
for their share of the partnership net income or debited for their share of the partnership
loss.
16.
In the absence of a partnership agreement, the law says that income of a partnership will
be shared equally by the partners.
17.
Salary allowances are reported as salaries expense on a partnership income statement.
18.
The statement of changes in partners’ equity shows the beginning balance in retained
earnings, plus investments, less withdrawals, plus the income (or less the loss) and the
ending balance in retained earnings.
19.
The equity section of the balance sheet of a partnership usually shows the separate
capital account balances of each partner.
20.
Even if partners devote their time and services to their partnership, their salaries are not
expenses on the income statement.
21.
If the partners agree on a formula to share income and say nothing about losses, then the
losses are shared using the same formula.
22.
Assume that the M & L partnership agreement gave March 60% and Ludwig 40% of
partnership income and losses. The partnership lost $27,000 in the current period. This
implies that March’s share of the loss equals $16,200, and Ludwig’s share equals $10,800.
23.
When a partner leaves a partnership, the present partnership ends.
24.
To buy into an existing partnership, the new partner must contribute cash to the
partnership.
25.
When a partner leaves a partnership, the present partnership ends, but the business can
still continue to operate.
26.
Assets invested by a partner into a partnership become the property of the business.
27.
Admitting a partner by accepting assets is a personal transaction between one or more
current partners and the new partner.
28.
Current partners usually require any new partner to pay a bonus for the privilege of joining
when the current value of a partnership is greater than the recorded amounts of equity.
29.
When a partner leaves a partnership, the withdrawing partner is entitled to a bonus if the
recorded equity is overstated.
30.
When a partnership is liquidated, its business is ended.
31.
A capital deficiency exists when at least one partner has a debit balance in his or her
capital account at the point of final cash distribution during liquidation.
32.
A capital deficiency can arise from liquidation losses, excessive withdrawals before
liquidation, or recurring losses in prior periods.
33.
If a partner is unable to cover a deficiency and the other partners absorb the deficiency,
then the partner with the deficiency is thus relieved of all liability.
34.
If at the time of partnership liquidation, a partner has a $5,000 capital deficiency and pays
the partnership $5,000 out of personal assets to cover the deficiency, then that partner is
entitled to share in the final distribution of cash.
Multiple Choice Questions
35.
An unincorporated association of two or more persons to pursue a business for profit as
co-owners is a:
36.
Advantages of a partnership include:
37.
A partnership agreement:
38.
Mutual agency means
39.
A partnership that has two classes of partners, general and limited, where the limited
partners have no personal liability beyond the amounts they invest in the partnership, and
no active role in the partnership, except as specified in the partnership agreement is a:
40.
A partnership designed to protect innocent partners from malpractice or negligence claims
resulting from acts of another partner is a(n):
41.
Mutual agency implies that each partner in a partnership is a fully authorized agent of the
partnership. Which of the following statements is correct regarding the authority of a
partner to bind the partnership in dealings with third parties?
Topic: Partnership Form of Organization
42.
Pat and Nicole formed Here & There as a limited liability company. Unless the member
owners elect to be treated otherwise, the Internal Revenue Service will tax the LLC as:
43.
A partnership in which all partners have mutual agency and unlimited liability is called:
44.
Carter Pearson is a partner in Event Promoters. His beginning partnership capital balance
for the current year is $55,000, and his ending partnership capital balance for the current
year is $62,000. His share of this year’s partnership income was $6,250. What is his
partner return on equity?
45.
Design Services is organized as a limited partnership, with Miko Toori as one of its
partners. Miko’s capital account began the year with a balance of $35,000. During the
year, Miko’s share of the partnership income was $7,500, and Miko received $4,000 in
distributions from the partnership. What is Miko‘s partner return on equity?
46.
The following information is available regarding Grace Smit’s capital account in Enterprise
Consulting Group, a general partnership, for a recent year:
Beginning of the year balance
$22,000
Share of partnership income
$8,500
Withdrawals made during the year
$6,000
What is Smit’s partner return on equity during the year in question?
47.
Partnership accounting does not:
48.
Partnership accounting is the same as accounting for: