Chapter 12 Accounting for Partnerships
MULTIPLE CHOICE QUESTIONS
1)
A partnership has a limited life.
A)
True
B)
False
2)
A partnership is an incorporated association of two or more people to pursue a business for profit
as co-owners.
A)
True
B)
False
3)
When a new partner is admitted, all parties usually must agree to the admission.
A)
True
B)
False
4)
The end of a partnership is referred to as its dissolution.
A)
True
B)
False
5)
Total partnership income is reported to the IRS on Form 1065.
A)
True
B)
False
6)
Partners are taxed on their withdrawals, not on their share of partnership income.
A)
True
B)
False
7)
The income or loss of a partnership is allocated to the partners according to the partnership
agreement, and it is included in determining the taxable income for each partner’s tax return.
A)
True
B)
False
8)
Mutual agency means each partner can commit or bind the partnership to any contract within the
scope of the partnership business.
A)
True
B)
False
9)
Accounting procedures for both C corporations and S corporations are the same in all aspects.
A)
True
B)
False
10)
Partners in a partnership are taxed on the partnership income, not the amounts they withdraw from
the partnership.
A)
True
B)
False
11)
Limited liability partnerships are designed to protect innocent partners from malpractice or
negligence claims resulting from the acts of another partner.
A)
True
B)
False
12)
A partnership may allocate salary allowances to the partners reflecting the relative value of services
provided.
A)
True
B)
False
13)
In a limited partnership the general partner has unlimited liability.
A)
True
B)
False
14)
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.
A)
True
B)
False
15)
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.
A)
True
B)
False
16)
When partners invest in a partnership, their capital accounts are debited for the amount invested.
A)
True
B)
False
17)
Partners’ withdrawals are debited to their separate withdrawals accounts.
A)
True
B)
False
18)
Partners can invest assets but not liabilities into a partnership.
A)
True
B)
False
19)
The withdrawals account of each partner is closed to income summary at the end of the accounting
period.
A)
True
B)
False
20)
Certain corporations with 100 or fewer stockholders can elect to be treated as a partnership for
income tax purposes. These corporations are called Subchapter S or simply S corporations.
A)
True
B)
False
21)
In a Limited Partnership, there must be more than one general partner.
A)
True
B)
False
22)
A Limited Liability Partnership (LLP) is designed to protect innocent partners from malpractice or
negligence claims resulting from the acts of another partner.
A)
True
B)
False
23)
The owners of a limited liability company (LLC), who are called members, are protected with the
same limited liability feature as owners of corporations.
A)
True
B)
False
24)
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.
A)
True
B)
False
25)
In the absence of a partnership agreement, the law says that income of a partnership will be shared
equally by the partners.
A)
True
B)
False
26)
Salary allowances are reported as salaries expense on a partnership income statement.
A)
True
B)
False
27)
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.
A)
True
B)
False
28)
The equity section of the balance sheet of a partnership can report the separate capital account
balances of each partner.
A)
True
B)
False
29)
Even if partners devote their time and services to their partnership, their salaries are not expenses
on the income statement.
A)
True
B)
False
30)
If the partners agree on a formula to share income and say nothing about losses, then the losses are
shared using the same formula.
A)
True
B)
False
31)
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.
A)
True
B)
False
32)
When a partner leaves a partnership, the present partnership ends.
A)
True
B)
False
33)
To buy into an existing partnership, the new partner must contribute cash to the partnership.
A)
True
B)
False
34)
When a partner leaves a partnership, the present partnership ends, but the business can still
continue to operate.
A)
True
B)
False
35)
Assets invested by a partner into a partnership become the property of the business.
A)
True
B)
False
36)
Admitting a partner by accepting assets is a personal transaction between one or more current
partners and the new partner.
A)
True
B)
False
37)
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.
A)
True
B)
False
38)
When a partner leaves a partnership, the withdrawing partner is entitled to a bonus if the recorded
equity is overstated.
A)
True
B)
False
39)
When a partnership is liquidated, its business is ended.
A)
True
B)
False
40)
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.
A)
True
B)
False
41)
A capital deficiency can arise from liquidation losses, excessive withdrawals before liquidation, or
recurring losses in prior periods.
A)
True
B)
False
42)
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.
A)
True
B)
False
43)
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.
A)
True
B)
False
44)
An unincorporated association of two or more persons to pursue a business for profit as co-owners
is a:
A)
Voluntary organization.
B)
Mutual agency.
C)
Partnership.
D)
Proprietorship.
E)
Contractual company.
45)
Advantages of a partnership include:
A)
Tax-free designation of all income earned
B)
Limited life.
C)
Unlimited liability.
D)
Voluntary association.
E)
Mutual agency.
46)
A partnership agreement:
A)
Is also called the articles of incorporation.
B)
Does not generally address the issue of the rights and duties of the partners.
C)
Is the same as a limited liability partnership.
D)
Is not binding unless it is in writing.
E)
Is binding even if it is not in writing.
47)
Mutual agency means
A)
Partners are taxed on partnership withdrawals.
B)
All partners must agree before the partnership can act.
C)
A partner can commit or bind the partnership in any contract within the scope of the
partnership business.
D)
The partnership has a limited life.
E)
Creditors can apply their claims to partners’ personal assets.
48)
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:
A)
Limited liability company.
B)
Limited partnership.
C)
Mutual agency partnership.
D)
Limited liability partnership.
E)
General partnership.
49)
A partnership designed to protect innocent partners from malpractice or negligence claims resulting
from acts of another partner is a(n):
A)
Limited liability partnership.
B)
Limited partnership.
C)
General partnership.
D)
Partnership.
E)
Unlimited liability company.
50)
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?
A)
Only a partner with a majority interest in a partnership has the authority to represent the
partnership to third parties.
B)
A partner has authority to deal with third parties on the behalf of the other partners only if he
has written permission to do so.
C)
The partner’s authority must be derived from the partnership agreement.
D)
The partner’s authority may be effectively limited by a formal resolution of the other partners,
even if third parties are not aware of that limitation.
E)
A partner may be able to legally bind the partnership to actions even if the other partners are
unaware of his actions.
51)
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:
A)
A joint venture.
B)
An S corporation.
C)
A partnership.
D)
A C corporation.
E)
A non-taxable entity.
52)
A partnership in which all partners have mutual agency and unlimited liability is called:
A)
S corporation.
B)
Limited partnership.
C)
Limited liability company.
D)
Limited liability partnership.
E)
General partnership.
53)
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?
A) 5.34% B) 10.08% C) 10.68% D) 8.93% E) 11.36%
54)
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?
A) 10.2% B) 22.7% C) 20.4% D) 21.4% E) 19.5%