1.       When the obligations of a partnership can’t 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.         

2.       Which of the following is an incorrect step in the process of partnership liquidation?

A. Paying any liabilities        

B. Closing all accounts payable       

C. Allocating gains and losses to partners    

D. Selling the assets              

3.       Laura’s investment in a new partnership includes $1,000 in cash and $5,000 of equipment. The new partnership is assuming $500 of Laura’s accounts payable. The partnership entry should be which of the following?

A. Debit Laura’s Capital $5,500; debit Accounts Payable $500; credit Cash $1,000; credit Equipment $5,000   

B. Debit Cash $1,000; debit Equipment $5,000; credit Laura’s Capital $6,000 

C. Debit Cash $1,000; debit Equipment $5,000; credit Accounts Payable $500; credit Laura’s Capital $5,500 

D. Debit Laura’s Investment $5,500; credit Capital $5,500     

4.       The sale of assets to liquidate a partnership is called

A. a sheriff’s sale.  

B. net profit.            

C. net liquidation.  

D. realization.         

5.       Mary and Jeff entered into a partnership agreement. However, the agreement didn’t 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          

6.       The net income earned by the Cooper, Cross, and Crane partnership is $18,000. Their respective average capital balances are $20,000, $20,000, and $40,000. What is the closing entry to allocate the net income if no agreement was made for division of income?

A. Debit Income Summary $18,000; credit Cooper’s Capital $6,000; credit Cross’s Capital $6,000; credit Crane’s Capital $6,000         

B. Debit Income Summary $18,000; credit Cooper’s Capital $4,500; credit Cross’s Capital $4,500; credit Crane’s Capital $9,000         

C. Debit Cooper’s Capital $6,000; debit Cross’s Capital $6,000; debit Crane’s Capital $6,000; credit Income Summary $18,000      

D. Net income cannot be allocated.               

7.       What is the closing entry to allocate a net income of $48,000 to Sara, Ellen, and Mary? Respective capital balances are $30,000, $40,000, and $30,000. No agreement was made for division of income.

A. Debit Income Summary $48,000; credit Sara’s Capital $16,000; credit Ellen’s Capital $16,000; credit Mary’s Capital $16,000      

B. Debit Income Summary $48,000; credit Sara’s Capital $14,400; credit Ellen’s Capital $19,200; credit Mary’s Capital $14,400      

C. Debit Salary Expense $48,000; credit Salaries Payable $48,000      

D. Net income cannot be allocated.               

8.       Nathan Long is entering into a partnership with Terri. Nathan is investing $2,000 in cash and equipment currently on Nathan’s books at $6,000, with an accumulated depreciation of $1,000. The equipment has a fair market value of $4,000. The entry to record Nathan’s investment should be which of the following?

A. Debit Cash $2,000; debit Equipment $6,000; credit Accumulated Depreciation $1,000; credit Nathan’s Capital $7,000      

B. Debit Cash $2,000; debit Equipment $6,000; credit Accumulated Depreciation $2,000; credit Nathan’s Capital $6,000      

C. Debit Nathan’s Capital $6,000; debit Accumulated Depreciation $2,000; credit Cash $2,000; credit Equipment $6,000      

D. Debit Cash $2,000; debit Equipment $4,000; credit Nathan’s Capital $6,000          

9.       Applying the interest allowance method, compute Taylor’s and Timmy’s share of net income if Taylor invested $200,000 and Timmy invested $800,000 at a 6% interest rate, with the remainder to be divided equally. Net income was $75,000.

A. Taylor $15,000; Timmy $60,000   

B. Taylor $37,500; Timmy $37,500    

C. Taylor $19,500; Timmy $55,500   

D. None of the above          

10.   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.  

11.   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          

 

12.   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

13.   The partnership dissolves when a partner leaves. This characteristic is called

A. mutual agency. 

B. limited life.        

C. limited liability.  

D. unlimited life.    

14.   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.        

15.   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          

16.   Since all partners are bound together in the agreement and each acts on behalf of the partnership, _______ has been established.

A. limited life           

B. limited risk           

C. mutual agency   

D. unlimited liability              

17.   In comparison with the proprietorship form of business organization, forming a partnership offers which advantage?

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            

18.   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          

19.   When a partnership is liquidated, the journal entry to pay the claims of creditors would include a debit to

A. Cash and a credit to each individual creditor.       

B. each individual creditor and a credit to Cash.      

C. each individual partner’s capital account.               

D. each individual partner’s capital account and a credit to Cash.      

20.   Allison and Josh are partners in a business. Allison’s capital is $60,000, and Josh’s capital is $100,000. Profits for the year are $80,000. They agree to share profits and losses as follows:

 

Allison

Josh

Salaries

$20,000

$40,000

Interest on capital

10%

10%

Remaining profits and losses

3/5

2/5

 

Allison’s share of the profits before paying salaries and interest on capital is:

A. $48,000.

B. $22,000.

C. $28,000.

D. $28,400.

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