Answer & Question : A partnership is an incorporated association of two or more people to pursue a business for profit as co-owners.

1. A partnership has a limited life.

TRUE

AACSB: Communication
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization

2. A partnership is an incorporated association of two or more people to pursue a business for profit as co-owners.

FALSE

3. Mutual agency means each partner can commit or bind the partnership to any contract within the scope of the partnership business.

TRUE

4. Accounting procedures for both C corporations and S corporations are the same in all aspects.

FALSE

5. Partners in a partnership are taxed on the partnership income, not the amounts they withdraw from the partnership.

TRUE

AACSB: Communication
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization

6. Limited liability partnerships are designed to protect innocent partners from malpractice or negligence claims resulting from the acts of another partner.

TRUE

7. A partnership may allocate salary allowances to the partners reflecting the relative value of services provided.

TRUE

AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss

8. In a limited partnership the general partner has unlimited liability.

TRUE

9. Partner return on equity can be used by each partner to help decide whether additional investment or withdrawal of resources is best for that partner.

TRUE

AACSB: Communication
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity

10. Feldt is a partner in Feldt & Dodson Company. Feldt’s share of the partnership income is $18,600 and her average partnership equity is $155,000. Her partner return on equity equals 8.33.

FALSE
Partner Return on Equity = Partnership Income/Average Partnership Equity
Partner Return on Equity = $18,600/$155,000 = 0.12 = 12%

AACSB: Analytical Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity

11. When partners invest in a partnership, their capital accounts are debited for the amount invested.

FALSE

AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership

12. Partners’ withdrawals are debited to their separate withdrawals accounts.

TRUE

13. Partners can invest assets but not liabilities into a partnership.

FALSE

AACSB: Communication
AICPA: BB Industry
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership

14. The withdrawals account of each partner is closed to retained earnings at the end of the accounting period.

FALSE

15. In closing the accounts at the end of a period, the partners’ capital accounts are credited for their share of the partnership net income or debited for their share of the partnership loss.

TRUE

AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership

16. In the absence of a partnership agreement, the law says that income of a partnership will be shared equally by the partners.

TRUE

AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss

17. Salary allowances are reported as salaries expense on a partnership income statement.

FALSE

AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss

18. The statement of changes in partners’ equity shows the beginning balance in retained earnings, plus investments, less withdrawals, plus the income (or less the loss) and the ending balance in retained earnings.

FALSE

AACSB: Communication
AICPA: BB Industry
AICPA: FN Reporting
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss

19. The equity section of the balance sheet of a partnership can report the separate capital account balances of each partner.

TRUE

AACSB: Communication
AICPA: BB Industry
AICPA: FN Reporting
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss

20. Even if partners devote their time and services to their partnership, their salaries are not expenses on the income statement.

TRUE

21. If the partners agree on a formula to share income and say nothing about losses, then the losses are shared using the same formula.

TRUE

22. Assume that the M & L partnership agreement gave March 60% and Ludwig 40% of partnership income and losses. The partnership lost $27,000 in the current period. This implies that March’s share of the loss equals $16,200, and Ludwig’s share equals $10,800.

TRUE
March’s Share of Loss = Net Loss * Allocation Percentage
March’s Share of Loss = $27,000 * 60% = $16,200

Ludwig’s Share of Loss = Net Loss * Allocation Percentage
Ludwig’s Share of Loss = $27,000 * 40% = $10,800

AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss

23. When a partner leaves a partnership, the present partnership ends.

TRUE

AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners

24. To buy into an existing partnership, the new partner must contribute cash to the partnership.

FALSE

25. When a partner leaves a partnership, the present partnership ends, but the business can still continue to operate.

TRUE

Answer & Question

Sunday, 21 October 2018

A partnership is an incorporated association of two or more people to pursue a business for profit as co-owners.

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