ACC PRINCIPLE 2_partnerships

A partnership

• a.         has only one owner

• b.   pays taxes on partnership income.

• c.         must file an information tax return

• d.         is not an accounting entity for financial reporting purposes.

Which one of the following would not be considered a disadvantage of the partnership form of organization?

• a.   Limited life

• b.   Unlimited liability

• c.   Mutual agency

• d.   Ease of formation

Which of the following is not a principal characteristic of the partnership form of business organization?

• a.   Mutual agency

• b.   Association of individuals

• c.   Limited liability

• d.   Limited life

Which of the following statements is true regarding a partnership contract?

• a.   The partnership contract must be in writing.

• b.         The partnership contract may be based on a verbal agreement

• c.   The partnership contract must be prepared by an attorney.

• d.   The partnership contract is not binding when the partnership experiences financial distress.

In a partnership, mutual agency means

• a.   each partner acts on his own behalf when engaging in partnership business.

• b.   the act of any partner is binding on all other partners, only if partners act within their scope of authority.

• c.   an act by a partner is judged as binding on other partners depending on whether the act appears to be appropriate for the partnership.

• d.   that partners must pay taxes on a mutual or combined basis.

The partner in a limited partnership that has unlimited liability is referred to as the

• a.         lead partner

• b.   head partner.

• c.   general partner.

• d.   unlimited partner.

The Gorni, Chambers, and Hale partnership is terminated when the claims of company creditors exceed partnership assets by $100,000. The capital balances for Gorni, Chambers, and Hale are $70,000, $10,000, and $0, respectively. The original claims of the creditors were negotiated by Chambers and Hale. Which partner(s) is(are) personally and individually liable for all partnership liabilities?

• a.   Gorni

• b.   Chambers

• c.   Chambers and Hale

• d.   Gorni, Chambers, and Hale

When a partner invests noncash assets in a partnership, the assets should be recorded at their

• a.   book value.

• b.   carrying value.

• c.   fair value.

• d.   original cost.

Nate is investing in a partnership with Deidre. Nate contributes as part of his initial investment, Accounts Receivable of $60,000; an Allowance for Doubtful Accounts of $9,000; and $6,000 cash. The entry that the partnership makes to record Nate’s initial contribution includes a

• a.   credit to Nate, Capital for $66,000.

• b.   debit to Accounts Receivable for $51,000.

• c.   credit to Nate, Capital for $57,000.

• d.   debit to Allowance for Doubtful Accounts for $9,000.

Todd is investing in a partnership with Joseph. Todd contributes equipment that originally cost $42,000, has a book value of $20,000, and a fair value of $26,000. The entry that the partnership makes to record Todd’s initial contribution includes a

• a.         debit to Equipment for $22,000

• b.         debit to Equipment for $42,000

• c.   debit to Equipment for $26,000.

• d.   credit to Accumulated Depreciation for $22,000.