401 chap13

Terms in this set (23)

The characteristic of a partnership where b

specific assets contributed by a partner
lose their identity as to source and
become shared

property of the partnership is:

a.a fiduciary relationship

b.tenancy in partnership

c.mutual agency

d.the proprietary theory

The characteristic of a partnership where c

a partner is an agent for other partners
and the partnership when transacting
partnership

business is:

a.a fiduciary relationship

b.tenancy in partnership

c.mutual agency

d.the proprietary theory

Which of the following statements is true d

when comparing corporations and
partnerships?

a.Partnership entities provide for taxes at

the same rates used by corporations.

b.In theory, partnerships are more able to

attract capital.

c.Like corporations, partnerships have an

infinite life.

d.Unlike shareholders, general partners

may have liability beyond their capital
balances.

401 chap13
A partnership that consists of two classes a
of partners, one that participates in
management of the company and have
unlimited liability,

and another that does not participate in

management and whose liability is limited
to a stated amount is a:

a.limited partnership

b.general partnership

c.limited liability partnership

d.mutual agency

A partnership where all partners may c

participate in management of the
company, but whose personal liability is
limited to that resulting

from their own actions or those who are

acting under their direct supervision is a:

a.limited partnership

b.general partnership

c.limited liability partnership

d.mutual agency

Which of the following is not a d

characteristic of a partnership consistent
with the proprietary theory?

a.Unlimited liability of general partners.

b.Salaries to partners are not expenses of

the partnership.

c.An original partnership is dissolved

upon a change in partners.

d.Partnership income taxes are paid.

401 chap13
Which of the following is not a c
characteristic of the proprietary theory
that influences accounting for
partnerships?

a.Partners' salaries are viewed as a

distribution of income rather than a
component of net income.

b.A partnership is not viewed as a

separate, distinct, taxable entity.

c.A partnership is characterized by

limited liability.

d.Changes in the ownership structure of a

partnership result in the dissolution of the
partnership.

Which of the following is not an b

advantage of a partnership over a
corporation?

a.Ease of formation

b.Unlimited liability
c.The elimination of taxes at the entity
level

d.All of the above

Under the entity theory, a partnership is

b
a.viewed through the eyes of the
partners.

b.viewed as having its own existence

apart from the partners.

c.a separate legal and tax entity.

d.unable to enter into contracts in its own

name.

The articles of partnership should include d

all but the following:

a.Powers and duties of the partners.

b.Procedures governing the distribution

of profit and loss.

c.The basis of accounting for the

partnership.

d.All of the above should be included in

the articles of partnership.
401 chap13
The Uniform Partnership Act d
a.defines how partners should distribute
profits and losses.

b.sets very specific guidelines as to how a

partnership should be set up.

c.defines entity theory which views the

partnership as separate from the
partners.

d.serves as a default where there is no

partnership agreement or where the
partnership fails to address a matter.

Partnership drawings are:

a
a.usually maintained in a separate
account from the partner's capital
account.

b.equal to partners' salaries.

c.similar to advances made to partners

and are included as assets on the
balance sheet.

d.not discussed in the specific contract

provisions of the partnership.

For financial accounting purposes, assets c

of an individual partner contributed to a
partnership are recorded by the
partnership at:

a.historical cost.

b.book value.

c.fair value.

d.lower of cost or market.

When partnership profits are allocated d

based on partnership capital, the
allocation should be based upon:

a.Capital at the beginning of the period.

b.Capital after withdrawals have been

applied.

c.Weighted average capital.

d.Whatever has been established in the

partnership agreement.
401 chap13
Which of the following best describes the d
use of interest on invested capital as a
means of allocating profits?

a.If interest on invested capital is used, it

must be used for all partners.

b.Interest is allocated only if there is

partnership net profit.

c.Invested capital balances are never

affected by drawings of the partnerships.

d.The partnership agreement should

clearly establish how invested capital is
to be determined in the calculation of
interest.

Which of the following statements is true a

concerning the treatment of salaries in
partnership accounting?

a.Partner salaries may be used to allocate

profits and losses; they are not
considered expenses of the partnership

b.Partner salaries are equal to the annual

partner draw.

c.The salary of a partner is treated in the

same manner as salaries of corporate
employees.

d.Partner salaries are directly closed to

the capital account.

Which of the following would be least d

likely to be used as a means of allocating
profits among partners who are active in
the management

of the partnership?

a.Salaries

b.Bonus as a percentage of net income

before the bonus

c.Bonus as a percentage of sales in

excess of a targeted amount

d.Interest on average capital balances

401 chap13
Partners active in a partnership business b
should have their share of partnership
profits based on the following:

a.a combination of salaries plus interest

based on average capital balances.

b.a combination of salaries and

percentage of net income after salaries
and any other allocation basis.

c.salaries only.

d.percentage of net income after salaries

is paid to inactive partners.

A partnership agreement calls for c

allocation of profits and losses by salary
allocations, a bonus allocation, interest
on capital, with any

remainder to be allocated by preset

ratios. If a partnership has a loss to
allocate, generally which of the following
procedures would be applied?

a.Any loss would be allocated equally to

all partners.

b.Any salary allocation criteria would not

be used.
c.The bonus criteria would not be used.

d.The loss would be allocated using the

profit and loss ratios, only.

Maxwell is trying to decide whether to d

accept a salary of $60,000 or a salary of
$25,000 plus a bonus of 20% of net
income after the bonus as a means of
allocating profit among the partners.
What amount of income would be
necessary so that Maxwell would
consider the choices to be equal?

a.$35,000

b.$85,000

c.$140,000

d.$210,000

401 chap13
Maxwell is trying to decide whether to d
accept a salary of $60,000 or a salary of
$25,000 plus a bonus of 20% of net
income after salaries and bonus as a
means of allocating profit among the
partners. Salaries traceable to the other
partners are estimated to be $75,000.
What amount of income would be
necessary so that Maxwell would
consider the choices to be equal?

a.$175,000

b.$210,000

c.$285,000

d.$310,000

Partners A and B have a profit and loss a

agreement with the following provisions:
salaries of $40,000 and $45,000 for A and
B, respectively; a bonus to A of 10% of net
income after salaries and bonus; and
interest of 15% on average capital
balances of $40,000 and $60,000 for A
and B, respectively. One-third of any
remaining profits or losses are allocated
to B and the balance to A. If $52,000,
how much should be allocated to Partner
A?

a.$14,000

b.$30,000

c.$38,000

d.None of the above

401 chap13
Taylor and Tanner formed a partnership. d
Taylor contributed $50,000 in cash.
Tanner contributed land and buildings he
purchased for $50,000 some time ago.
His tax basis in the property is now
$30,000, although it was recently
appraised for $70,000. There is a $15,000
mortgage attached to the building that
the partnership will assume. What is the
amount of Tanner's capital account after
his contribution?

a.$50,000

b.$30,000

c.$35,000
d.$55,000