Reference no: EM13503172

17.1 Learning Objective 17-1

1) Many associations such as medical centers and law firms could organize as a:
A) sole proprietorship.
B) corporation.
C) partnership.
D) All of the above.

2) The accounting procedures are the same for sole proprietorships as for partnerships with the exception of:
A) the asset section includes more than one cash account.
B) the liability section.
C) the revenue section.
D) the capital section is now divided per the number of partners.

3) Articles of partnership:
A) are required to form a partnership by federal law.
B) are a formal written agreement that states the partners' relationship.
C) may be an oral agreement.
D) Both B and C are correct.

4) The partnership dissolves when a partner leaves. This characteristic is called:
A) mutual agency.
B) limited life.
C) limited liability.
D) unlimited life.
5) The actions of one partner are binding on all of the other partners. This characteristic is called:
A) mutual agency.
B) exclusive agency.
C) unlimited life.
D) limited liability.

6) When the obligations of a partnership cannot be met, each partner is liable for the obligation. This characteristic is called:
A) limited life.
B) unlimited liability.
C) limited liability.
D) mutual agreement.

7) A general partner is:
A) personally liable for all of the debts of the partnership.
B) liable for only the amount of his/her investment.
C) a partner that is liable for the amount of taxes paid each period.
D) None of these answers are correct.


8) Which of the following is true of a partnership?
A) Actions of one partner are binding on all the other partners.
B) Each partner is individually liable for partnership debts.
C) All of the owners always share income and losses equally.
D) Both A and B are correct.
9) David and Daniel formed a partnership. David invested $10,000, cash; Daniel invested $5,000 cash and equipment valued at $6,000. The proper entry to record this is to:
A) debit Cash $15,000; debit Equipment $6,000; credit Capital $21,000.
B) debit Cash $15,000; debit Equipment $6,000; credit Accounts Payable $21,000.
C) debit Cash $15,000; debit Equipment $6,000; credit David's Capital $10,000; and credit Daniel's Capital $10,000.
D) debit Cash $15,000; debit Equipment $6,000; credit David's Capital $10,000; and credit Daniel's Capital $11,000.

10) Tricia and Jennifer formed a partnership. Tricia invested $10,000 cash; Jennifer invested $5,000 cash, equipment valued at $6,000, and $1,000 accounts payable. The proper entry to record this is:
A) debit Cash 15,000; debit Equipment 6,000; credit Accounts Payable $1,000; credit Tricia's Capital $10,000; and credit Jennifer's Capital $10,000.
B) debit Cash 15,000; debit Equipment 6,000; debit Accounts Payable $1,000; credit Tricia's Capital $10,000; and credit Jennifer's Capital $10,000.
C) debit Cash $15,000; debit Equipment $6,000; credit Tricia's Capital $10,000; and credit Jennifer's Capital $10,000.
D) debit Cash $15,000; debit Equipment $6,000; credit Tricia's Capital $10,000; and credit Jennifer's Capital $11,000.

11) Partner A invested furniture that was recorded at a value below the fair market value. This error would cause:
A) the period's net income to be overstated.
B) the period end capital to be overstated.
C) the period end assets to be overstated.
D) the period end assets to be understated.
12) In comparison with the proprietorship form of business organization, forming a partnership offers which of the following advantages?
A) Limited life
B) Legal liability of each partner for all of the debts
C) Combination of ability and experience of the partners
D) Simple transfer of interest in the partnership to outsiders

13) When two proprietors decide to combine their businesses and form a partnership, GAAP usually requires that non-cash assets be taken over at their:
A) residual value on the date of the partnership.
B) book value on the date of the partnership.
C) fair market value on the date of the partnership.
D) historical cost on the date of the partnership.

14) Which of the following is not generally written into the articles of partnership agreement?
A) Rights and responsibilities of each partner
B) Provisions for admission of new partners
C) Amount that each partner is investing
D) All are written into the agreement.

15) Since all partners are bound together in the agreement and each acts on the behalf of the partnership, ________ has been established.
A) limited life
B) limited risk
C) mutual agency
D) unlimited liability
16) Using its book value, Partner C invested equipment which had been valued over the past year using straight-line when declining balance was appropriate. This error would cause:
A) future period's net income to be understated.
B) future period's net income to be overstated.
C) this period end assets to be understated.
D) None of these are correct.

17) All assets held by a partnership are:
A) co-owned by all partners.
B) owned by the partner(s) who purchased the assets.
C) owned by the partners based on investment percentage.
D) owned by the partnership.

18) Laura's investment in a new partnership includes $1,000 cash and $5,000 equipment. The new partnership is assuming $500 of Laura's accounts payable. The partnership entry should be to:
A) debit Laura, Capital $5,500; debit Accounts Payable $500; credit Cash $1,000; credit Equipment $5,000.
B) debit Cash $1,000; debit Equipment $5,000; credit Laura Capital, $6,000.
C) debit Cash $1,000; debit Equipment $5,000; credit Accounts Payable $500; credit Laura, Capital, $5,500.
D) debit Laura, Investment $5,500; credit Capital $5,500.

19) Nathan Long is entering into a partnership with Terri. Nathan is investing $2,000 cash and equipment currently on Nathan's books at $6,000 and accumulated depreciation of $1,000. The equipment has a fair market value of $4,000. The entry to record Nathan's investment should include be to:
A) debit Cash $2,000; debit Equipment $6,000; credit Accumulated Depreciation $1,000; credit Long, Capital $7,000.
B) debit Cash $2,000; debit Equipment $6,000; credit Accumulated Depreciation $2,000; credit Long, Capital $6,000.
C) debit Long, Capital $6,000; debit Accumulated Depreciation $2,000; credit Cash $2,000; credit Equipment $6,000.
D) debit Cash $2,000; debit Equipment $4,000; credit Long, Capital $6,000.
20) A partnership cannot be formed with an oral agreement.