QUIZ NO.

Name: ___________________ Section:________ Date: ______ Score: _______

Multiple Choice:

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. unlimited liability
b. partnership accounting
c. a partnership contract
d. mutual agency
2. Which of the following is not true regarding a partnership?
a. A partnership is a voluntary association.
b. Partnerships pay income taxes.
c. Partnerships have limited life.
d. Partners in general partnerships have unlimited liability.
3. Which is NOT a condition of a limited partnership?
a. Limited partners are expected to have an active role in management.
b. A limited partner's liability will be limited to his/her investment.
c. One partner of the limited partnership must be a general partner.
d. Limited partnerships will have more than one class of partner.
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. $12,000 increase
b. $60,000 increase
c. $54,000 decrease
d. $12,000 decrease
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. $7,000
b. $9,000
c. $18,000
d. $19,500
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

1
$51,000. What will be the total amount credited to the Capital account of partner C
when the Income Summary account is closed?
a. $15,000
b. $20,000
c. $42,000
d. $32,000
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. a debit to Cash for $24,000
b. a debit to Cash for $20,000
c. a debit to Maxwell, Capital for $24,000
d. a debit to Maxwell, Capital for $20,000
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. a debit to cash for $30,000
b. a credit to Norton's capital account for $30,000
c. a credit to Slade's capital account for $7,500
d. a credit to Slade's capital account for $37,500
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. a credit to cash for $20,000
b. a credit to Maxwell's capital account for $4,000
c. a credit to Slade's capital account for $6,000
d. a credit to Norton's capital account for $30,000
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. a debit to cash for $40,000
b. a credit to Maxwell's capital account for $2,000
c. a credit to Slade's capital account for $3,000
d. a credit to Norton's capital account for $30,000
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,
2
$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. a credit to cash for $25,000
b. a debit to Maxwell's capital account for $2,000
c. a credit to Slade's capital account for $6,000
d. a debit to Norton's capital account for $35,000
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. a debit to cash for $40,000
b. a debit to Maxwell's capital account for $5,000
c. a debit to Slade's capital account for $5,000
d. a debit to Norton's capital account for $35,000
13.
Capital Balances
Cash Other Assets = Liabilities Maxwell Slade Norton
$20,000 $81,000 $20,000 $30,000 $40,000 $11,000
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. The loss on liquidation was $21,000.
b. Maxwell's share of the ending cash balance was $23,000
c. Slade's share of the ending cash balance was $33,000
d. Norton's share of the ending cash balance was $7,000
14.
Capital Balances
Cash Other Assets = Liabilities Maxwell Slade Norton
$10,000 $71,000 $20,000 $30,000 $26,000 $5,000
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. The loss on liquidation was $21,000.
b. The cash balance before final distribution was $40,000.
c. Maxwell's share of the ending cash balance was $22,000
d. Slade's share of the ending cash balance was $19,000

3
ANSWER KEY:
1. d. mutual agency
Mutual agency is being described, and is one of the main reasons why care should be
taken in selecting partners. A corporation's shareholders have no mutual agency
relationship with the corporation.
2. b.Partnerships pay income taxes.
3. a. Limited partners are expected to have an active role in management.
Limited partners have limited liability, therefore, they have no active role in the
management of the partnership. There are two classes of partners: (a) limited partners
and (2), at minimum, one general partner.
4.a.$12,000increase
The distribution of net income would be: $72,000 to X for the salary allowance,
$24,000 each to X and Y of the remaining $48,000 ($120,000 - $72,000). X's capital
was credited for $96,000 and debited for $84,000 (12 x $7,000), a net increase of
$12,000.
5.c.$18,000
After the salary allowance is paid to partner B, $27,000 remains to be shared by the
partners. Partner A will receive 2/3 of the $27,000, or $18,000.
6.c.$42,000
After the salary allowance is paid to partner C, $36,000 remains to be shared by the
partners. Partner C will receive 3/4 of the $36,000, or $27,000. The $15,000 salary
plus the $27,000 share will total $42,000.
7. d. a debit to Maxwell, Capital for $20,000
The transaction is a purchase of interest, a personal transaction between Slade and
Norton. The cash is paid directly to Maxwell. The journal entry would be a debit to
Maxwell's capital account for $20,000 (1/2 x $40,000) and a credit to Norton's capital
account for $20,000.
8.c. a credit to Slade's capital account for $7,500
The new equity balance would be $120,000 ($30,000 + $60,000 + $30,000). A 25%
interest is $30,000 ($120,000 x .25). There is no bonus. The journal entry would be a
debit to Cash for $30,000 and a credit to Norton, Capital for $30,000, a 25% interest in
the partnership.
9. d. a credit to Norton's capital account for $30,000
The new equity balance would be $120,000 ($40,000 + $60,000 + $20,000). A 25%
interest is $30,000 ($120,000 x .25). This creates a bonus of $10,000 to the new
partner. The bonus is divided between Maxwell and Slade in proportion to their
previous investment ratio of 4:6, or 40%, 60% and the amounts would be debited to
their accounts.
10. d. a credit to Norton's capital account for $30,000
The new equity balance would be $140,000 ($40,000 + $60,000 + $40,000). A 25%
interest is $35,000 ($140,000 x .25). This creates a bonus of $5,000 for the old
partners. The bonus is divided between Maxwell and Slade in proportion to their
previous investment ratio of 4:6, or 40%, 60%.
11. b. a debit to Maxwell's capital account for $2,000
The remaining partners, Maxwell and Slade, are receiving a bonus of $10,000 from
Norton. They will share the bonus according to their income-and-loss-sharing
agreement of 40%, 60%. Maxwell should receive a credit for $4,000 and Slade a credit
for $6,000.
12. d. a debit to Norton's capital account for $35,000

4
The withdrawing partner, Norton, would receive a $5,000 bonus upon withdrawing
from the partnership. The bonus to the withdrawing partner is shared between the
remaining partners according to their income-and-loss-sharing agreement of 40%,
60%.
13. d. Norton's share of the ending cash balance was $7,000
After the sharing equally the $21,000 loss on the sale of the assets, Norton's capital
account was $4,000. The ending cash balance was $60,000 ($20,000 + $60,000 -
$20,000). Maxwell received $23,000, Slade received $33,000, and Norton received
$4,000; a total of $60,000.
14. d. Slade's share of the ending cash balance was $19,000
After the sharing equally the $21,000 loss on the sale of the assets, Norton's capital
account was ($2,000). Maxwell and Slade shared the deficiency equally. Maxwell
received $22,000 ($23,000 - $1,000) and Slade received $18,000 ($19,000 - $1,000).

5
A partnership is dissolved when either a new partner joins the firm or a current partner
withdraws.
A. True

B. False

2. Salaries to partners and interest on partners' capital balances are expenses of the
partnership.
A. True

B. False

3. A new partner may only be admitted by investing assets in the partnership.

A. True

B. False

4. A bonus may be paid to a departing partner when the fair market value of
partnership assets exceeds the net book value of partnership assets.
A. True

B. False

5. The liquidation of a partnership entails selling the noncash assets of the firm,
allocating any resulting gain or loss to the partners, paying liabilities, and distributing
any remaining cash to the partners.
A. True

B. False

6. All of the following are characteristics of partnerships except:

A. co-ownership of property.

B. mutual agency.

C. limited life.

D. limited liability.

7. Which of the following is not an advantage of a partnership?

A. Combines the skills and resources of two or more individuals.

B. Easily formed.

C. Relative freedom from governmental regulations and restrictions.

D. Mutual agency.

6
8. When a partner invests noncash assets in a partnership, the assets should be
recorded at their:
A. book value.

B. carrying value.

C. fair market value.

D. original cost.

9. Which of the following statements is correct?

A. Salaries to partners and interest on partners' capital are expenses of the
partnership.

B. Salaries to partners are expenses of the partnership but interest on partners'

capital is not.

C. Interest on partners' capital is an expense of the partnership but salaries are

not.

D. Neither salaries to partners nor interest on partners' capital are expenses of

the partnership.

10. Partnership income ratios can be expressed as a:

A. fixed ratio.

B. percentage.

C. fraction.

D. any of these options.

11. The admission of a partner by purchase of an existing partner's interest in the firm:
A. increases total partnership assets.

B. increases total partnership capital.

C. is a personal transaction between an existing partner and the new partner.

D. can result in a bonus to the other partners.

12. The admission of a partner by an investment of assets in a partnership:

A. will not affect the net assets of the partnership.

B. increases total partnership capital.

C. is a personal transaction between an existing partner and the new partner.

D. does not require an entry in the partnership records.

13. When a new partner's capital credit is less than his/her investment in the firm, the
difference is allocated to the old partners:

7
 A. equally.

B. on the basis of their income ratios.

C. on the basis of their original investments.

D. in proportion to their capital balances.

14. The bonus that results when a new partner's capital credit is greater than his/her
investment in the firm is recorded by debiting:
A. bonus expense.

B. the existing partners' capital accounts.

C. the existing partners' drawing accounts.

D. the new partner's capital account.

15. A bonus may be paid to a departing partner when the:

A. recorded assets are overvalued.

B. partnership has a poor earnings record.

C. partner is anxious to leave the partnership.

D. partnership has unrecorded goodwill.

16. A departing partner may give a bonus to the remaining partners when:
A. the fair market value of partnership assets is more than their book value.

B. the recorded assets are undervalued.

C. the partner is anxious to leave the partnership.

D. there is unrecorded goodwill.

17. A bonus paid to a departing partner is deducted from the remaining partners'
capital balances:
A. equally.

B. on the basis of their income ratios.

C. on the basis of their original investments.

D. in proportion to their capital balances.

18. The first step in the liquidation of a partnership is to:

A. allocate gain/loss on realization to the partners.

B. distribute remaining cash to partners.

C. pay partnership liabilities.

8
 D. sell noncash assets and recognize a gain or loss on realization.

19. When a partnership is liquidated, the remaining cash should be distributed to

partners:
A. equally.

B. on the basis of their income-sharing ratios.

C. on the basis of their capital balances.

D. on the basis of their original investments.

20. If a partner with a capital deficiency is unable to pay the amount owed to the
partnership, the deficiency is allocated to the partners with credit balances:
A. equally.

B. on the basis of their income ratios.

C. on the basis of their capital balances.

D. on the basis of their original investments.