MULTIPLE CHOICE QUESTIONS - Partnership Accounting

1. Under the Uniform Partnership Act, loans made by a partner to the partnership are treated as:
a. advances to the partnership for which interest shall be paid from the date of the advance.
b. advances to the partnership that are carried in the partners' capital accounts.
c. Accounts Payable of the partnership for which interest is paid.
d. advances to the partnership for which interest does not have to be paid.

2. Which of the following observations is true of an S corporation?

a. It elects to be taxed in the same manner as a corporation.
b. It does not have the burden of double taxation of corporate income.
c. Its shareholders have personal liability for the corporation's obligations.
d. Its primary income source should be passive investments.

3. Which of the following accounts could be found in the general ledger of a partnership?

a. Option A
b. Option B
c. Option C
d. Option D

4. Langley invests his delivery van in a computer repair

partnership with McCurdy. What amount should the van be
credited to Langley’s partnership capital?
a. The tax basis.
b. The fair value at the date of contribution.
c. Langley’s original cost.
d. The assessed valuation for property tax purposes.

5. A partner's tax basis in a partnership is comprised of which of the following items?

I. The partner's tax basis of assets contributed to the partnership.
II. The amount of the partner's liabilities assumed by the other partners.
III. The partner's share of other partners' liabilities assumed by the partnership.
a. I plus II minus III
b. I plus II plus III
c. I minus II plus III
d. I minus II minus III
6. Which of the following procedures is acceptable when accounting for a deficit balance in a partners capital
account during partnership liquidation?

a. A partner with a negative capital balance must contribute personal assets to the partnership that are
sufficient to bring the capital account to zero.

b. If a partner with a negative capital balance is personally insolvent, the negative capital balance may be
absorbed by those partners having a positive capital balance according to the residual profit and loss sharing
ratios that apply to all the partners.

c. If a partner with a negative capital balance is personally insolvent, the negative capital balance may be
absorbed by those partners having a positive capital balance according to the residual profit and loss sharing
ratios of all the partners in the partnership

d. None of the above procedures are acceptable.

7. If the partnership agreement provides a formula for the computation of a bonus to the partners, the bonus
would be computed

a. next to last, because the final allocation is the distribution of the profit residual.

b. before income tax allocations are made.

c. after the salary and interest allocations are made.

d. in any manner agreed to by the partners.

8. Bonus method is based upon which of the following principle(s)?

a. Matching Principle

b. Income Recognition Principle

c. Historical Cost Principle

d. All of the above.

9. Withdrawal or retirement from the partnership may either be:

I. Selling of an interest to an outsider.

II. Selling of an interest to an existing partner.

III. Selling of an interest to the partnership/payment from partnership fund.

a. I & II

b. III only

c. I, II & III

d. None of the given answers

10. First step in liquidation process is to:

a. Sell all non-cash assets and allocate the resulting gain or loss to the partners

b. Offset loans in partners' capital balances

c. Pay and satisfy liabilities to creditors

d. Absorb debit balances in capital accounts of the partners