Question-1
Articles of partnership __________.
A. are required to form a partnership by federal law
B. are a formal written agreement that states the partners' relationship
C. may be an oral agreement
D. both B and C
Question-2
A general partner is __________.
A. personally liable for all of the debts of the partnership
B. liable for only the amount of his investment
C. liable for the amount of taxes paid each period
D. none of the above
Question-3
Partner A invested furniture that was recorded at a value below the fair market value. This error would cause __________.
A. the period's net income to be overstated
B. the period end capital to be overstated
C. the period end assets to be overstated
D. the period end assets to be understated
Question-4
The sale of assets to liquidate a partnership is called __________.
A. a sheriff's sale
B. net profit
C. net liquidation
D. realization
Question-5
When two proprietors decide to combine their businesses and form a partnership, GAAP usually requires that non-cash assets be taken over at their __________.
A. residual value on the date of the partnership
B. book value on the date of the partnership
C. fair market value on the date of the partnership
D. historical cost on the date of the partnership
Question-6
In comparison with the proprietorship form of business organization, forming a partnership offers which of the following advantages?
A. limited life
B. legal liability of each partner for all of the debts
C. combination of ability and experience of the partners
D. simple transfer of interest in the partnership to outsiders
Question-7
Many associations such as medical centers and law firms could organize as a __________.
A. sole proprietorship
B. corporation
C. partnership
D. all of the above
Answer-8
Mary and Jeff entered into a partnership agreement. However, the agreement did not state how income and losses would be divided. The law states that income will be divided __________.
A. equally
B. according to investments
C. according to abilities
D. none of the above
Question-9
Nathan Long is entering into a partnership with Terri. Nathan is investing $2,000 in cash and equipment currently on Nathan's books at $6,000 with an accumulated depreciation of $1,000. The equipment has a fair market value of $4,000. The entry to record Nathan's investment should include be to __________.
A. debit Cash $2,000; debit Equipment $6,000; credit Accumulated Depreciation $1,000; credit Nathan's Capital $7,000
B. debit Cash $2,000; debit Equipment $6,000; credit Accumulated Depreciation $2,000; credit Nathan's Capital $6,000
C. debit Nathan's Capital $6,000; debit Accumulated Depreciation $2,000; credit Cash $2,000; credit Equipment $6,000
D. debit Cash $2,000; debit Equipment $4,000; credit Nathan's Capital $6,000
Question-10
A statement of partner's equity is the same as a statement of owner's equity except __________.
A. there is a capital account for all partners
B. net income is assigned to one partner
C. no additional investment by partners are shown on the statement
D. There is no difference in the statements
Question-11
Which of the following is an incorrect step in the process of partnership liquidation?
A. paying any liabilities
B. closing all accounts payable
C. allocating gains and losses to partners
D. selling the assets
Question-12
The average capital balances of partners Bridget and Emily are $3,000 and $6,000, respectively. Both women work at the business full-time. The business earned a net income of $12,000 for the period. The partners have agreed to share earnings based upon the percentage of original investment. Bridget's share of the net income is __________.
A. $4,000
B. $6,000
C. $8,000
D. indeterminable
Question-13
The partnership dissolves when a partner leaves. This characteristic is called __________.
A. mutual agency
B. limited life
C. limited liability
D. unlimited life
Question-14
The net income earned by the Cooper, Cross, and Crane partnership is $18,000. Their respective average capital balances are $20,000, $20,000, and $40,000. What is the closing entry to allocate the net income if no agreement was made for division of income?
A. Debit Income Summary $18,000; credit Cooper's Capital $6,000; credit Cross's Capital $6,000; credit Crane's Capital $6,000
B. Debit Income Summary $18,000; credit Cooper's Capital $4,500; credit Cross's Capital $4,500; credit Crane's Capital $9,000
C. debit Cooper's Capital $6,000; debit Cross's Capital $6,000; debit Crane's Capital $6,000; credit Income Summary $18,000
D. cannot allocate net income
Question-15
A partnership can be terminated by which of the following?
A. bankruptcy
B. death of a partner
C. agreement by partners
D. all of the above
Question-16
When the obligations of a partnership cannot be met, each partner is liable for the obligation. This characteristic is called __________.
A. limited life
B. unlimited liability
C. limited liability
D. mutual agreement
Question-17
The first entry to liquidate a partnership would probably include __________.
A. debit to Cash; credit to Individual Assets Sold
B. debit to Cash; debit or credit to Loss or Gain from Realization; credit to Individual Assets Sold
C. debit to Individual Assets Sold; credit to Cash
D. none of the above
Question-18
Laura's investment in a new partnership includes $1,000 in cash and $5,000 of equipment. The new partnership is assuming $500 of Laura's accounts payable. The partnership entry should be to __________.
A. debit Laura's Capital $5,500; debit Accounts Payable $500; credit Cash $1,000; credit Equipment $5,000
B. debit Cash $1,000; debit Equipment $5,000; credit Laura's Capital, $6,000
C. debit Cash $1,000; debit Equipment $5,000; credit Accounts Payable $500; credit Laura's Capital, $5,500
D. debit Laura's Investment $5,500; credit Capital $5,500
Question-19
Applying the interest allowance method, compute Julie and Jennifer's share of net income if Julie invested $40,000 and Jennifer invested $24,000 at an 8% interest rate, with the remainder to be divided equally. Net income was $10,000.
A. Julie $3,200; Jennifer $1,920
B. Julie $6,250; Jennifer $3,750
C. Julie $5,640; Jennifer $4,360
D. none of the above
Question-20
The actions of one partner are binding on all of the other partners. This characteristic is called __________.
A. mutual agency
B. exclusive agency
C. unlimited life
D. limited liability
