Answer & Question : An unincorporated association of two or more persons to pursue a business for profit as co-owners is a:

35. An unincorporated association of two or more persons to pursue a business for profit as co-owners is a:

A. Partnership.

B. Proprietorship.

C. Contractual company.

D. Mutual agency.

E. Voluntary organization.

AACSB: Communication
AICPA: BB Industry
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

36. Advantages of a partnership include:

A. Limited life.

B. Mutual agency.

C. Unlimited liability.

D. Co-ownership of property.

E. Voluntary association.

37. A partnership agreement:

A. Is not binding unless it is in writing.

B. Is the same as a limited liability partnership.

C. Is binding even if it is not in writing.

D. Does not generally address the issue of the rights and duties of the partners.

E. Is also called the articles of incorporation.

38. Mutual agency means

A. Creditors can apply their claims to partners’ personal assets.

B. Partners are taxed on partnership withdrawals.

C. All partners must agree before the partnership can act.

D. The partnership has a limited life.

E. A partner can commit or bind the partnership in any contract within the scope of the partnership business.

39. A partnership that has two classes of partners, general and limited, where the limited partners have no personal liability beyond the amounts they invest in the partnership, and no active role in the partnership, except as specified in the partnership agreement is a:

A. Mutual agency partnership.

B. Limited partnership.

C. Limited liability partnership.

D. General partnership.

E. Limited liability company.

40. A partnership designed to protect innocent partners from malpractice or negligence claims resulting from acts of another partner is a(n):

A. Partnership.

B. Limited partnership.

C. Limited liability partnership.

D. General partnership.

E. Unlimited liability company.

41. Mutual agency implies that each partner in a partnership is a fully authorized agent of the partnership. Which of the following statements is correct regarding the authority of a partner to bind the partnership in dealings with third parties?

A. The partner’s authority must be derived from the partnership agreement.

B. The partner’s authority may be effectively limited by a formal resolution of the other partners, even if third parties are not aware of that limitation.

C. Only a partner with a majority interest in a partnership has the authority to represent the partnership to third parties.

D. A partner has authority to deal with third parties on the behalf of the other partners only if he has written permission to do so.

E. A partner may be able to legally bind the partnership to actions even if the other partners are unaware of his actions.

AACSB: Communication
AICPA: BB Industry
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

42. Pat and Nicole formed Here & There as a limited liability company. Unless the member owners elect to be treated otherwise, the Internal Revenue Service will tax the LLC as:

A. An S corporation.

B. A C corporation.

C. A non-taxable entity.

D. A joint venture.

E. A partnership.

43. A partnership in which all partners have mutual agency and unlimited liability is called:

A. Limited partnership.

B. Limited liability partnership.

C. General partnership.

D. S corporation.

E. Limited liability company.

44. Carter Pearson is a partner in Event Promoters. His beginning partnership capital balance for the current year is $55,000, and his ending partnership capital balance for the current year is $62,000. His share of this year’s partnership income was $6,250. What is his partner return on equity?

A. 5.34%

B. 8.93%

C. 10.08%

D. 11.36%

E. 10.68%
Partner Return on Equity = Partners’ Income/Average Partnership Equity
Partner Return on Equity = $6,250[/($55,000 + $62,000)/2] = 0.1068 = 10.68%

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

45. Design Services is organized as a limited partnership, with Miko Toori as one of its partners. Miko’s capital account began the year with a balance of $35,000. During the year, Miko’s share of the partnership income was $7,500, and Miko received $4,000 in distributions from the partnership. What is Miko’s partner return on equity?

A. 10.2%

B. 22.7%

C. 19.5%

D. 20.4%

E. 21.4%
Miko’s Ending Equity = Beginning Equity + Share of Income – Distributions
Miko’s Ending Equity = $35,000 + $7,500 – $4,000 = $38,500

Partner Return on Equity = Partners’ Income/Average Partnership Equity
Partner Return on Equity = $7,500/[($35,000 + $38,500)/2] = 0.204 = 20.4%

AACSB: Analytical Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity

46. The following information is available regarding Grace Smit’s capital account in Enterprise Consulting Group, a general partnership, for a recent year:

Beginning of the year balance $22,000
Share of partnership income $8,500
Withdrawals made during the year $6,000

What is Smit’s partner return on equity during the year in question?

A. 36.6%

B. 34.7%

C. 10.8%

D. 11.4%

E. 55.7%
Smit’s Ending Equity = Beginning Equity + Share of Income – Distributions
Smit’s Ending Equity = $22,000 + $8,500 – $6,000 = $24,500

Partner Return on Equity = Partners’ Income/Average Partnership Equity
Partner Return on Equity = $8,500/[($22,000 + $24,500)/2] = 0.366 = 36.6%

AACSB: Analytical Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity

47. Partnership accounting does not:

A. Use a capital account for each partner.

B. Use a withdrawals account for each partner.

C. Allocate net income to each partner according to the partnership agreement.

D. Allocate net loss to each partner according to the partnership agreement.

E. Tax the business entity.

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

48. Partnership accounting is the same as accounting for:

A. A sole proprietorship.

B. A corporation.

C. A sole proprietorship, except that separate capital and withdrawal accounts are kept for each partner.

D. An S corporation.

E. A corporation, except that retained earnings is used to keep track of partners’ withdrawals.

49. Partners’ withdrawals of assets are:

A. Credited to their withdrawals accounts.

B. Debited to their withdrawals accounts.

C. Credited to their retained earnings.

D. Debited to their retained earnings.

E. Debited to their asset accounts.

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

50. The withdrawals account of each partner is:

A. Closed to that partner’s capital account with a credit.

B. Closed to that partner’s capital account with a debit.

C. A permanent account that is not closed.

D. Credited with that partner’s share of net income.

E. Debited with that partner’s share of net loss.

Answer & Question

Sunday 21 October 2018

An unincorporated association of two or more persons to pursue a business for profit as co-owners is a:

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