Chapter 12 Test Key PDF

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Chapter 12 - Partnerships

Chapter 12: Partnerships Knowledge : 10 Multiple Choice Questions: _______/10 marks

1. The legal relationship among the partners whereby each partner is an agent of the partnership and is able to bind the partnership to contracts within the apparent scope of the partnership's business is called: A. Unlimited liability. B. A partnership contract. C. Mutual agency. D. Preemptive right. E. Voluntary association. Difficulty: Moderate Learning Objective: 12-01 Identify characteristics of partnerships. Type: Knowledge

2. A partnership designed to protect innocent partners from malpractice or negligence claims resulting from acts of another partner is a: A. Partnership. B. Limited partnership. C. Limited liability partnership. D. General partnership. E. Limited liability company. Difficulty: Hard Learning Objective: 12-01 Identify characteristics of partnerships. Type: Knowledge

3. Partnership accounting: A. Is the same as accounting for a sole proprietorship. B. Is the same as accounting for a corporation. C. Is the same as accounting for a sole proprietorship, except that separate capital and withdrawal accounts are kept for each partner. D. Is the same as accounting for a not-for profit organization. E. None of these answers is correct. Difficulty: Easy Learning Objective: 12-03 Allocate and record income and loss among partners. Type: Knowledge

4. Which of the following statements is Answer: True? A. Partners are employees of the partnership. B. Salaries to partners are expenses on the income statement. C. Salary allowances should reflect the relative value of services provided by partners. D. Salary allowances are expenses. E. Interest allowances are expenses. Difficulty: Hard

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Chapter 12 - Partnerships Learning Objective: 12-03 Allocate and record income and loss among partners. Type: Knowledge

5. In the absence of a partnership agreement, the law says income/loss sharing should be based on: A. A fractional basis. B. The ratio of capital investments. C. Salary allowances. D. Equal shares. E. Interest allowances. Difficulty: Easy Learning Objective: 12-03 Allocate and record income and loss among partners. Type: Knowledge

6. If a partnership contract provides for interest at 10% annually on each partner's investment, the interest: A. Is ignored when earnings are not sufficient to pay interest. B. Provides for the sharing of a portion of the partnership earnings in the capital ratio. C. Is an expense of the business. D. Must be paid in cash. E. Legally becomes a liability of the partnership. Difficulty: Moderate Learning Objective: 12-03 Allocate and record income and loss among partners. Type: Knowledge

7. A partner can withdraw from a partnership by: A. Selling his/her interest to another person who pays for it in cash. B. Selling his/her interest to another person who pays for it with non-cash assets. C. Receiving cash or other assets of the partnership equal to the amount of his/her capital account. D. Receiving cash or other assets of the partnership greater than the amount of his/her capital account. E. All of these answers are correct. Difficulty: Easy Learning Objective: 12-04 Account for the admission and withdrawal of a partner. Type: Knowledge

8. A bonus may be paid: A. By a new partner when the current fair value of a partnership is greater than the recorded amounts of equity. B. To a partner who provides services in excess of the salary allowance. C. To an existing partner with exceptional talents. D. By a new partner when the current fair value of a partnership is less than the recorded amounts of equity. E. All of these answers are correct. Difficulty: Moderate Learning Objective: 12-04 Account for the admission and withdrawal of a partner. Type: Knowledge

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Chapter 12 - Partnerships

9. When a new partner is added to a partnership: A. The partnership ends. B. The underlying business ends. C. The underlying business continues. D. The partnership continues. E. The partnership ends, but the underlying business continues. Difficulty: Moderate Learning Objective: 12-04 Account for the admission and withdrawal of a partner. Type: Knowledge

10. A capital deficiency means that: A. The partnership has a loss. B. The partnership has more liabilities than assets. C. At least one partner has a debit balance in his/her capital account. D. At least one partner has a credit balance in his/her capital account. E. The partnership has been sold at a loss. Difficulty: Moderate Learning Objective: 12-05 Prepare entries for partnership liquidation. Type: Knowledge

Applications 1. William and Christie form a partnership by investing $60,000 and $40,000 respectively. Their partnership agreement stipulates that William will receive an annual salary allowance of $6,000, and both partners will receive an interest allowance of 10% on their capital investment. Any net income remaining is to be allocated 60% to William, and 40% to Christie. Net income for their first year of operations is $40,000. Prepare the entry to close Income Summary. / 6 marks William

Christie

Net Income: Salary allowance Interest allowance Net income remaining: Ratio Share of Net Income:

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Total

Chapter 12 - Partnerships

Date

Accounts

Debit

Credit

Difficulty: Moderate Learning Objective: 12-03 Allocate and record income and loss among partners. Type: Application

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Chapter 12 - Partnerships

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Chapter 12 - Partnerships

63. On August 1, Jill Farety and Nicole Osilinsky decide to form a partnership. Of the following items shown below, Jill invested the assets and the partnership assumed the liabilities:

Nicole invested $40,000 in cash and $25,000 in equipment. Prepare two journal entries to record the partners' investments in the partnership. Date

Accounts

Dr.

Cr.

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Chapter 12 - Partnerships

Difficulty: Moderate Learning Objective: 12-02 Prepare entries when forming a partnership. Type: Application

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Chapter 12 - Partnerships

72. Marquis and Bose decide to accept Sherman into the partnership. Sherman will contribute $25,000 in cash, which will also be the amount to be credited to his capital account. Prepare the journal entry to record the transaction. Date

Accounts

Debit

Credit

Difficulty: Easy Learning Objective: 12-04 Account for the admission and withdrawal of a partner. Type: Application

73. With the consent of the other partners, Parker decides to sell one half of his $30,000 interest in the ABC Partnership to Lopez privately for $14,000. Prepare the journal entry to record the transaction. Date

Accounts

Debit

Credit

Difficulty: Moderate Learning Objective: 12-04 Account for the admission and withdrawal of a partner. Type: Application

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Chapter 12 - Partnerships

74. Armstrong withdraws from the JT Partnership. At this time her capital account is $35,000. The remaining partners agree to pay her $35,000 for her interest. Prepare the journal entry to record the withdrawal. Date

Accounts

Debit

Credit

Difficulty: Easy Learning Objective: 12-04 Account for the admission and withdrawal of a partner. Type: Application

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Chapter 12 - Partnerships

75. Armstrong is anxious to leave the JT Partnership. At this time her capital account is $48,000. The remaining partners, Tanner and Jackson, agree to pay Armstrong $40,000 in cash. Prepare the journal entry to record the withdrawal. Assume the partners have no agreement for sharing profits and losses. Date

Accounts

Debit

Credit

Difficulty: Moderate Learning Objective: 12-04 Account for the admission and withdrawal of a partner. Type: Application

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Chapter 12 - Partnerships

76. Armstrong plans to leave the JT Partnership. At this time her capital account is $48,000. The remaining partners, Tanner and Jackson, agree to pay Armstrong $58,000. Prepare the journal entry to record the withdrawal. Assume the partners have no agreement for sharing profits and losses. Date

Accounts

Debit

Credit

Difficulty: Moderate Learning Objective: 12-04 Account for the admission and withdrawal of a partner. Type: Application

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Chapter 12 - Partnerships

77. Mung and Long allow Kang to join their partnership for $50,000 cash. The recorded value of the equity being purchased is $40,000. Prepare the journal entry to record the admission of Kang to the partnership. Assume the partners have no agreement for sharing profits and losses. Date

Accounts

Debit

Credit

Difficulty: Moderate Learning Objective: 12-04 Account for the admission and withdrawal of a partner. Type: Application

Bjorn, Douglas and Pierce have a partnership and share the income and losses in a 3:1:1 ratio. They decide to liquidate their partnership on March 31, 2015. The following accounts dad balances before liquidation: Cash Equipment AD AP Bjorn, Douglas, Pierce, Equipment Capital Capital Capital $47,400 $233,400 $128,400 $27,600 $55,200 $63,600 $6,000

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Chapter 12 - Partnerships

Date

Accounts

Dr.

Cr.

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Chapter 12 - Partnerships

The equipment is sold for $66,000 on March 31. Prepare the entries on March 31, 2015 to record the liquidation under the following assumptions: a) Any deficiencies are paid by the partners; b) The deficiencies cannot be paid by the partners

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Chapter 12 - Partnerships

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