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Chapter 15: Partnership Accounting

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Chapter 15: Partnership Accounting

16 problems · 0 figures

Multiple Choice 15.1 §15.1 source ↗

A partnership ________.
  1. a.
    has one owner
  2. b.
    can issue stock
  3. c.
    pays taxes on partnership income
  4. d.
    can have more than one general partner

Answer

D. can have more than one general partner

Multiple Choice 15.3 §15.1 source ↗

Which of the following is a disadvantage of the partnership form of organization?
  1. a.
    limited life
  2. b.
    no taxation at the partnership level
  3. c.
    flexibility in business operations
  4. d.
    combining of financial resources

Answer

A. limited life

Multiple Choice 15.5 §15.2 source ↗

Chani contributes equipment to a partnership that she purchased 2 years ago for $10,000. The current book value is $7,500 and the market value is $9,000. At what value should the partnership record the equipment?
  1. a.
    $10,000
  2. b.
    $9,000
  3. c.
    $7,500
  4. d.
    none of the above

Answer

B. $9,000

Multiple Choice 15.7 §15.2 source ↗

Which one of the following would not be considered in the development of a partnership agreement?
  1. a.
    profit and loss levels
  2. b.
    processing disputes
  3. c.
    stock options
  4. d.
    asset contributions

Answer

C. stock options

Multiple Choice 15.9 §15.3 source ↗

What type of assets may a partner not contribute to a partnership?
  1. a.
    accounts receivable
  2. b.
    furniture
  3. c.
    equipment
  4. d.
    personal credit cards

Answer

D. personal credit cards

Multiple Choice 15.11 §15.4 source ↗

Thandie and Marco are partners with capital balances of $60,000. They share profits and losses at 50% each. Chris contributes $30,000 to the partnership for a 1/3 share. What amount should the partnership record as a bonus to Chris?
  1. a.
    $20,000
  2. b.
    $15,000
  3. c.
    $10.500
  4. d.
    $5,000

Answer

A. $20,000

Multiple Choice 15.13 §15.4 source ↗

Thandie and Marco are partners with capital balances of $60,000. They share profits and losses at 50%. Chris contributes $90,000 to the partnership for a 1/3 share. What amount should the partnership record as an individual bonus to each of the old partners?
  1. a.
    $10,000
  2. b.
    $7,000
  3. c.
    $3,000
  4. d.
    $20,000

Answer

A. $10,000

Multiple Choice 15.15 §15.5 source ↗

When a partnership dissolves, the first step in the dissolution process is to ________.
  1. a.
    allocate the gain or loss on sale based on income sharing ratio
  2. b.
    pay off liabilities
  3. c.
    sell noncash assets
  4. d.
    divide the remaining cash among the partners

Answer

C. sell noncash assets

Multiple Choice 15.17 §15.5 source ↗

Prior to proceeding with the liquidation, the partnership should ________.
  1. a.
    prepare adjusting entries without closing
  2. b.
    complete the accounting cycle for final operational period
  3. c.
    prepare only closing entries
  4. d.
    complete financial statements only

Answer

B. complete the accounting cycle for final operational period

Question 15.1 §15.1 source ↗

Does a partnership pay income tax?

Answer

No; it is a passthrough entity, meaning the taxation flows to the owners. The partners pay taxes on their distributive share of the partnership’s income.

Question 15.3 §15.2 source ↗

Can a partnership assume liabilities as part of one of the partner’s contributions?

Answer

Yes, the partnership can assume liabilities as part of one partner’s contributions. However, that should be agreed upon during the creation of the partnership agreement, where each partner lists assets and value. In addition, the assumption of liabilities by the partnership reduces the amount of assets the partner is contributing and thus the relevant capital account.

Question 15.5 §15.3 source ↗

What types of bases for dividing partnership net income or net loss are available?

Answer

A strong response would include fixed ratios; a ratio based on beginning-of-year capital balances, end-of-year capital balances, or an average capital balance during the year; salaries to partners and the remainder on a fixed ratio; interest on the partners’ capital balances and the remainder on a fixed ratio; and some combination of all or some of the above methods (salaries to partners, interest on capital balances, and the remainder on a fixed ratio).

Question 15.7 §15.3 source ↗

On February 3, 2016 Sam Singh invested $90,000 cash for a 1/3 interest in a newly formed partnership. Prepare the journal entry to record the transaction.

Answer

JOURNAL
Date 2016 Account Debit Credit
Feb. 3 Cash 90,000  
       S. Singh, Capital   90,000
Table 15.3

Question 15.9 §15.5 source ↗

What are the four steps involved in liquidating a partnership?

Answer

1. sell noncash assets, 2. allocate any gain or loss, 3. fulfill liabilities, and 4. distribute remaining cash

Question 15.11 §15.5 source ↗

What is the first step in a partnership liquidation (termination and sale of assets)?

Answer

Sell non-cash assets

Question 15.13 §15.5 source ↗

Coffee Partners decides to close due to the increased competition from the national chains. If after liquidating the noncash assets there is not enough cash to cover accounts payable, what happens?

Answer

The general partners would be expected to make the vendors whole.

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Problems and answers are adapted from Principles of Accounting, Volume 1: Financial Accounting by Mitchell Franklin, Patty Graybeal and Dixon Cooper, OpenStax, and are used under the CC BY-NC-SA 4.0 licence. Access for free at https://openstax.org/books/principles-financial-accounting/pages/1-why-it-matters. Illustrations: Copyright Rice University, OpenStax, under CC BY-NC-SA 4.0 license. This adaptation is released under the same licence, is non-commercial, and is neither affiliated with nor endorsed by OpenStax or Rice University.