14-1.

The legal characteristic of a partnership whereby each partner is an agent of the partnership and is able to bind the partnership to contracts within the normal scope of the partnership business is known as: a. b. c. d. unlimited liability partnership accounting a partnership contract mutual agency

14-2. Which of the following is not true regarding a partnership? a. b. c. d. A partnership is a voluntary association. Partnerships pay income taxes. Partnerships have limited life. Partners in general partnerships have unlimited liability.

14-3. Which is NOT a condition of a limited partnership? a. b. c. d. Limited partners are expected to have an active role in management. A limited partner's liability will be limited to his/her investment. One partner of the limited partnership must be a general partner. Limited partnerships will have more than one class of partner.

14-4. The partnership agreement provided for a salary allowance of $6,000 per month to partner X, and the balance to be divided equally between partners X and Y. X made no additional partnership investments during the year, but withdrew $7,000 per month. Net income for the year was $120,000. The net change in X's capital account was a: a. b. c. d. $12,000 increase $60,000 increase $54,000 decrease $12,000 decrease

14-5. A and B are partners who share profits and losses on a 2:1 basis, respectively, after a salary allowance of $12,000 is allocated to partner B. Earnings for the period total $39,000. What will be the amount credited to the Capital account of partner A when the books are closed? a. b. c. d. $7,000 $9,000 $18,000 $19,500

14-6. C and D are partners who share profits and losses on a 3:1 basis, respectively, after a salary allowance of $15,000 is allocated to partner C. Earnings for the period total $51,000. What will be the total amount credited to the Capital account of partner C when the Income Summary account is closed? a. b. $15,000 $20,000

c. d.

$42,000 $32,000

14-7. In the partnership of Maxwell and Slade, Maxwell's capital balance is $40,000 and Slade's capital balance is $60,000. Maxwell sold 50% of his partnership interest to Norton, who paid $24,000 for the 50% interest. The journal entry on the partnership books related to this transaction would include: a. b. c. d. a debit to Cash for $24,000 a debit to Cash for $20,000 a debit to Maxwell, Capital for $24,000 a debit to Maxwell, Capital for $20,000

14-8. Norton invested $30,000 in the partnership of Maxwell and Slade. The capital balance of Maxwell and Slade were $30,000 and $60,000, respectively. Norton was to receive a 25% interest in the new partnership. The journal entry to record this transaction would NOT include: a. b. c. d. a debit to cash for $30,000 a credit to Norton's capital account for $30,000 a credit to Slade's capital account for $7,500 a credit to Slade's capital account for $37,500

14-9. Norton invested $20,000 in the partnership of Maxwell and Slade. The capital balance of Maxwell and Slade were $40,000 and $60,000, respectively. Income and loss is shared according to the ratio of equity balances. Norton was to receive 25% interest in the new partnership. The journal entry to record this transaction would include: a. b. c. d. a credit to cash for $20,000 a credit to Maxwell's capital account for $4,000 a credit to Slade's capital account for $6,000 a credit to Norton's capital account for $30,000

14-10. Norton invested $40,000 in the partnership of Maxwell and Slade. The capital balance of Maxwell and Slade were $40,000 and $60,000, respectively. Income and loss is shared according to the ratio of equity balances. Norton was to receive 25% interest in the new partnership. The journal entry to record this transaction would NOT include: a. b. c. d. a debit to cash for $40,000 a credit to Maxwell's capital account for $2,000 a credit to Slade's capital account for $3,000 a credit to Norton's capital account for $30,000

14-11. Norton was paid $25,000 from the partnership cash account for his withdrawal from the partnership of Maxwell, Slade, and Norton. Their capital balances were $40,000, $60,000, and $35,000, respectively. Income and loss is shared according to the ratio of equity balances. The journal entry to record the withdrawal of Norton would NOT include: a. b. a credit to cash for $25,000 a debit to Maxwell's capital account for $2,000

c. d.

a credit to Slade's capital account for $6,000 a debit to Norton's capital account for $35,000

14-12. Norton was paid $40,000 from the partnership cash account for his withdrawal from the partnership of Maxwell, Slade, and Norton. Their capital balance were $40,000, $60,000, and $35,000, respectively. The journal entry to record the withdrawal of Norton would include: a. b. c. d. 14-13. Capital Balances Cash Other Assets = $81,000 Liabilities Maxwell Slade Norton $40,000 $11,000 $20,000 $20,000 $30,000 a debit to cash for $40,000 a debit to Maxwell's capital account for $5,000 a debit to Slade's capital account for $5,000 a debit to Norton's capital account for $35,000

The other assets were sold for $60,000, and the liabilities were paid, in preparation to liquidating the partnership. Income and loss was shared evenly. Which of the following is NOT true? a. b. c. d. 14-14. Capital Balances Cash Other Assets = $71,000 Liabilities Maxwell Slade Norton $26,000 $5,000 $10,000 $20,000 $30,000 The loss on liquidation was $21,000. Maxwell's share of the ending cash balance was $23,000 Slade's share of the ending cash balance was $33,000 Norton's share of the ending cash balance was $7,000

The other assets were sold for $50,000, and the liabilities were paid, in preparation to liquidating the partnership. Income and loss was shared evenly. Any deficient partner will be unable to pay the deficiency. Which of the following is NOT true? a. b. c. d. The loss on liquidation was $21,000. The cash balance before final distribution was $40,000. Maxwell's share of the ending cash balance was $22,000 Slade's share of the ending cash

14-1. A partnership is an incorporated association of two or more persons to pursue a business for profit as co-owners. True False 14-2. A written contract is necessary for the legal formation of a partnership. True

False 14-3. Partnerships are subject to income taxes. True False 14-4. Partners can agree to limit the power of negotiating contracts for the partnership to any one or more of the partners. Such an agreement is binding on all outsiders, whether or not they know it exists. True False 14-5. If Partner A contributes cash of $20,000 to the partnership of A and B, and Partner B contributes a building valued at $30,000 to the partnership, the investments become joint property of both partners. True False 14-6. A general partnership may consist of limited partners and general partners. True False 14-7. Limited partners are liable for any debt that cannot be paid through the resources of the partnership. True False 14-8. General partners are included in limited partnerships. True False 14-9. If Partner A invested twice as much as Partner B, and there are only two partners, the income must be divided in a ratio of 2:1, respectively. True False 14-10. If partners agree to a method of sharing net income, but say nothing about net losses, losses are shared in the same way as net income. True False 14-11. When a partnership agreement provides for the division of earnings based on time spent and investment balances, the resulting amounts may be treated by the partners as deductible salary expenses and interest expenses in determining the net income of the partnership. True

False 14-12. In the purchase of partnership interest, the capital accounts of the exiting partner(s) will be reduced. True False 14-13. With a 100% purchase of the interest of a partner, a new partner has all the rights of the remaining partner(s) . True False 14-14. The capital of an existing partnership is $160,000 after Keith invested $40,000 in the partnership. Keith is entitled to 25% (1/4) of the income or loss of the partnership. True False 14-15. When the current value of the partnership is greater than the recorded amounts of equity, the bonus resulting from a purchase of interest is given to the old partner(s). True False 14-16. The withdrawal of a partner from a partnership may result in an increase in the capital accounts of the remaining partners. True False 14-17. There is more than one reason for giving a withdrawing partner assets of value greater than the withdrawing partner's recorded equity. True False 14-18. The death of a partner will require that all noncash assets are sold for cash, all liabilities are paid, and remaining cash be distributed to the estate of the dead partner on the basis of the partnership income and loss agreement. True False 14-19. Partners will share gains and losses on liquidation in their capital investment ratio. True False 14-20. A capital deficiency occurs when a partner has insufficient equity to cover his or her share of losses resulting from liquidation.

True False