Multiple Choice
Identify the choice that best completes the statement or answers the
question.
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1.
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A partnership
a. | has only one owner. | b. | pays income tax on partnership
income. | c. | has a limited life. | d. | is not an accounting entity for financial
reporting purposes. |
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2.
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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. |
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3.
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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. |
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4.
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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 |
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5.
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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 required to file an income 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. |
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6.
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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. |
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7.
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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?
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. |
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8.
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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 |
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9.
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Each partner's share of net income is entered into her capital account
through
a. | adjusting entries. | b. | closing entries. | c. | correcting
entries. | d. | accrual entries. |
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10.
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An income ratio based on capital balances might be appropriate when
a. | service is a primary consideration. | b. | some, but not all, partners plan to work in the
business. | c. | funds invested in the partnership are considered the critical
factor. | d. | little net income is expected. |
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11.
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Which of the following would not be considered an expense of a partnership in
determining income for the period?
a. | Expired insurance | b. | Income tax expense | c. | Rent
expense | d. | Utilities expense |
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12.
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The Statement of Partners' Capital explains
a. | the amount of legal liability of each of the partners. | b. | the types of assets
invested in the business by each partner. | c. | how the partnership will be capitalized if a
new partner is admitted to the partnership. | d. | the changes in each partner's capital
account and in total partnership capital during a period. |
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13.
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The admission of a new partner to an existing partnership
a. | may be accomplished only by investing assets in the partnership. | b. | requires purchasing
the interest of one or more existing partners. | c. | causes a legal dissolution of the existing
partnership. | d. | is almost always accompanied by the liquidation of the
business. |
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14.
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When a partnership interest is purchased
a. | each partner’s capital account is affected. | b. | the transaction is a
personal transaction between the purchaser and the selling partner(s). | c. | the buyer receives
equity equal to the amount of cash paid. | d. | all partners will receive some part of the
purchase price. |
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15.
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A bonus to a new partner
a. | is prohibited by GAAP. | b. | results when the new partner's capital
credit is less than his or her investment of net assets in the firm. | c. | may occur when
recorded book values are lower than market values. | d. | results when the new partner's capital
credit is greater than his or her investment of assets in the firm. |
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16.
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The liquidation of a partnership is a process containing the following
steps:
1. Pay partnership liabilities in
cash.
2. Allocate the gain or loss on realization to the partners on
their income ratios.
3. Sell noncash assets for cash and recognize a
gain or loss on realization.
4. Distribute remaining cash to
partners on the basis of their remaining
capital
balances.
a. | 3, 2, 4, 1 | b. | 3, 2, 1, 4 | c. | 1, 3, 2,
4 | d. | 1, 4, 3, 2 |
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