A+ Answers

1. The accounting procedures for sole proprietorships are the same as for partnerships EXCEPT:
a. that the asset section includes more than one cash account.
b. for the liability section.
c. for the revenue section.
d. that the capital section is now divided per the number of partners.
2. The partnership dissolves when a partner leaves. This characteristic is called:
a. Mutual agency.
b. limited life.
c. limited liability
d. unlimited life.
3. 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
4. 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
5. 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
6. 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 .
7. 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
8. 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
9. When two proprietors decide to combine their businesses and form a partnership, GAAP usually requires that non-cash assists 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.
10. Since all partners are bound together in the agreement and each acts on the behalf of the partnership, ________ has been established.
a. limited life
b. limited risk
c. mutual agency
d. unlimited liability
11. Partner A invested furniture that was recorded at a value below the fairs 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.
12. Which of the following is NOT generally written into the articles of partnership agreement?
a. Rights and responsibilities of each partner
b. Provisions for admitting new partners
c. Amount that each partner is investing
d. None of the above
13. When a partnership is terminated, the assets are turned into cash and obligations are paid. This process is called:
a. dissolution
b. termination
c. realization
d. None of the above
14. The sale of assets to liquidate a partnership is called:
a. a sheriff’s sale.
b. net profit.
c. net liquidation.
d. realization
15. Which of the following is an incorrect step in the process of partnership liquidation?
a. Paying any liabilities
b. Closing all accounts payable
c. Allocation gains and losses to partners
d. Selling the assets
16. 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
17. Which method of allocating profits and losses is based on a percentage of initial investment by the partners?
a. Salary allowance
b. Salary expense
c. Profit and loss ratio
d. Interest allowance
18. 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
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
20. 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