PARTNERSHIP ACCOUNTING

TRUE OR FALSE

1. In a general partnership, each partner is individually liable to creditors for debts incurred by the

partnership, to the extent of the partner's capital balance.

2. A disadvantage of partnerships is the mutual agency of all partners.

3. A partnership requires only an agreement between two or more persons to organize.

4. When compared to a corporation, one of the major disadvantages of the partnership is its limited

life.

5. An advantage of the partnership form of business is that each partner’s potential loss is limited to

that partner’s investment in the partnership.

6. When a partner invests noncash assets in a partnership, the assets are recorded at the partner's

book value.

7. A Limited Liability Company is a business entity form designed to overcome some of the

disadvantages of the partnership form.

8. A new partner contributes accounts receivable to a partnership which appear in the ledger of his

sole proprietorship at $20,500 and there was an allowance for doubtful accounts of $750. If $600

of the accounts receivables are completely worthless, the partnership accounts receivable should

be debited for $19,900.

9. When a partner withdraws from the partnership, the partnership dissolves.

10. Dissolution is the term which solely means to liquidate the partnership.
MULTIPLE CHOICE

11. When a limited partnership is formed

A. the partnership activities are limited

B. all partners have limited liability

C. some of the partners have limited liability

D. none of the partners have limited liability

12. When a partnership is formed, assets contributed by the partners should be recorded on the

partnership books at their

A. book values on the partners' books prior to their being contributed to the partnership

B. fair market value at the time of the contribution

C. original costs to the partner contributing them

D. assessed values for property purposes

13. A ratio of 3:2:1 is the same as

A. 30%:20%:10% C. 3/10:2/10:1/20

B. 3/6:2/6:1/6 D. None of these

14. As part of the initial investment, a partner contributes equipment that had originally cost $125,000

and on which accumulated depreciation of $100,000 has been recorded. If similar equipment

would cost $150,000 to replace and the partners agree on a valuation of $38,000 for the

contributed equipment, what amount should be debited to the equipment account?

A. $38,000 C. $125,000

B. $150,000 D. $100,000

15. As part of the initial investment, Omar contributes accounts receivable that had a balance of

$22,500 in the accounts of a sole proprietorship. Of this amount, $2,000 is completely worthless.

For the remaining accounts, the partnership will establish a provision for possible future

uncollectible accounts of $1,500. The amount debited to Accounts Receivable for the new

partnership is
 A. $19,000 C. $21,000

B. $22,500 D. $20,500

16. Radley and Smithers share income and losses in a 2:1 ratio after allowing for salaries to Radley of

$48,000 and $60,000 to Smithers. Net income for the partnership is $96,000. Income should be

divided as follows:

A. Radley, $48,000; Smithers, $48,000 C. Radley, $64,000; Smithers, $32,000

B. Radley, $56,000; Smithers, $40,000 D. Radley, $40,000; Smithers, $56,000

17. Franco and Elisa share income equally. During the current year the partnership net income was

$40,000. Franco made withdrawals of $12,000 and Elisa made withdrawals of $17,000. At the

beginning of the year, the capital account balances were: Franco capital, $40,000; Elisa capital,

$58,000. Franco’s capital account balance at the end of the year is

A. $74,500 C. $60,000

B. $62,500 D. $48,000

18. Xavier and Yolonda have original investments of $50,000 and $100,000 respectively in a

partnership. The articles of partnership include the following provisions regarding the division of

net income: interest on original investment at 15%, salary allowances of $22,000 and $20,000

respectively, and the remainder equally. How much of the net income of $90,000 is allocated to

Xavier?

A. $30,250 C. $45,000

B. $47,750 D. $42,250

19. Izabelle and Marta are forming a partnership. Izabelle will invest a piece of equipment with a book

value of $7,500 and a fair market value of $20,000. Marta will invest a building with a book value

of $40,000 and a fair market value of $58,000. What amount will be recorded to the building

account?

A. $28,000 C. $58,000

B. $18,000 D. $40,000
20. Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are

$40,000 and $60,000 respectively. Income Summary has a credit balance of $20,000. What is

Tomas’s capital balance after closing Income Summary to Capital?

A. $45,000 C. $65,000

B. $55,000 D. $75,000