First Trinal Exam Part 1

FIRST TRINAL EXAMINATION
Which of the following results in dissolution of a partnership? *

The withdrawal of a partner from a partnership.
The winding up of the partnership and the distribution of remaining assets to the partners.
The receipt of a draw by an existing partner.
The contribution of additional assets to the partnership by an existing partner.
When a partner is admitted to a partnership, an original partner’s capital account may

be adjusted for *
His or her share of previously unrecorded intangible assets traceable to the incoming partner.
His or her share of previously unrecorded intangible assets traceable to the original p artners.
A proportionate share of the incoming partner’s investment.
None of the above.
Correct answer
A proportionate share of the incoming partner’s investment.
The disadvantages of the partnership form of business organization, compared to

corporations, include *
The legal requirements for formation.
Unlimited liability for the partners
The requirement for the partnership to pay income taxes
The extent of governmental regulations.
When one partner retired from the partnership, the final settlement of her interest
exceeded her capital balance. Under the bonus method, the excess: *
Was recorded as goodwill
Was recorded as an expense
Reduced the capital balances of the remaining partners.
Had no effect on the capital balances of the remaining partners.
Under GAAP, what is the most valid reason for the incremental credit to the capital of
a newly admitted partner in addition to his properly valued contributed capital? *
Capital bonus coming from existing partners.
Impairment of the existing assets of the partnership.
Asset revaluation of the existing assets of the partnership.
Goodwill arising from admission of a new partner in an existing partner.
If a new partner acquires a partnership interest directly from the partners rather than
from the partnership itself, *
The partnership has undergone a quasi-reorganization.
The existing partners’ capital accounts should be reduced and the new partner;s account
increased.
The partnership assets should be revalued.
No entry is required.
Which of the following is not a characteristics of the proprietary theory that

influences accounting for partnerships? *
Changes in the ownership structure of a partnership result in the dissolution of the partnership.
Partners’ salaries are viewed as a distribution of income rather than a component of net income.
A partnership is not viewed as separate entity, distinct, taxable entity.
A partnership is characterized by limited liability.
When a property other than cash is invested in a partnership, at what amount should
the noncash property be credited to the contributing partner’s capital account? *
Contributing partner’s tax basis
Assessed valuation for property tax purposes.
Contributing partner's original cost
Fair value at the date of contribution
Which of the following statements are incorrect? *

A partnership rests upon a contractual foundation, therefore, the life span of a partnership may
be somewhat uncertain since it depends on the moods and relationships of the partners.
Dissolution and liquidation in relation to partnerships are synonymous.
A partnership is said to be dissolved when the original association for purposes of carrying on
activities has ended.
A partnership is said to be liquidated when the business is terminated.
If the partnership agreement does not specify how income is to be allocated, profits
and loss should be allocated *
Equally
In proportion to the weighted average of capital invested during the period.
Equitably so that partners are compensated for the time and effort expended on behalf of the
partnership
In accordance with their capital contribution.
If a bonus is traceable to the previous partners rather than an incoming partner, it is
allocated among the partners according to the *
capital percentages of the new partnership
capital percentages of the previous partners.
profit-sharing percentages of the new partnership.
profit sharing percentages of the previous partnership.
If there is a provision for division of profits but not losses in the partnership
agreement, it is concluded that: *
Losses should not be divided to the capital accounts, but matched against future earnings.
Losses should be divided using the same approach as division of profits.
Losses should be divided equally.
Losses should be allocated according to the ratio of capital accounts balances.
Which of the following statements are incorrect? *

The capital account is an equity account similar to the shareholder’s equity accounts in a
corporation.
The drawing account is used to account for net income or loss and personal or normal
withdrawals.
The capital account used to account for permanent as well as temporary withdrawals and
additional contributions.
Loans accounts are set up for amounts intended as loans, rather than as additional capital
investments.
Which of the following is not an advantage of a partnership over a corporation? *

Ease of formation
Unlimited liability
The elimination of taxes at the entry level.
All of the above.
Under what circumstances can the closing of the income summary account result in
a debit to one partners’ capital account and credits to the other partners’ capital
accounts? *
The results of operations are divided in a profit and loss ratio and the partnership sustained a
loss for the period.
The results of operations are allocated in a profit and loss ratio and the partnerships net income
was very low.
The results of operations are divided in the average capital ratio and one partner had a low
capital balance.
The partnership agreement provides for interest on capital and salary allowances and net
income is less that the sum of the interest and salary allowances.
Correct answer
The results of operations are divided in a profit and loss ratio and the partnership sustained a
loss for the period.
The partnership contract provides that “net income or losses are to be distributed in
the ratio of partners’ capital account balances’. The appropriate interpretation of this
provision is that net income or losses should be distributed in
The ratio of beginning capital account balances.
The ratio of original capital account balances.
The ratio of average capital account balances.
The ratio of ending capital account balances.
Correct answer
The ratio of original capital account balances.
Which of the following statements are true when comparing corporations and
partnerships? *
Partnership entities provide for taxes at the same rates used by corporations.
In theory, partnerships are more able to attract capital.
Like corporations, partnerships have an infinite lfe.
Unlike shareholders, general partners may have liability beyond their capital balances.
The bonus method of recording a new partner’s investment in the partnership is best
characterized by *
The bonus always results in an increase to the previous partners’ capital balances.
Assuming that recorded assets are properly valued, the book value of the new partnership is
equal to the book value of the previous partnership and the investment of the new partner.
The new partner’s initial capital balance is equal to his or her investment.
Net assets of the previous partnership are not revalued.
A partnership is formed by two individuals who were previously sole proprietors.

Property other than cash that is part of the initial investment in the partnership is
recorded for financial accounting purposes at the *
Proprietor’s book values or the fair value of the propert at the date of the investment, whichever
is higher.
Proprietor’s book values or the fair value of the property at the date of the investment, whichever
is lower.
Proprietor’s book values of the property at the date of investment.
Fair value of the property at the date of the investment.
If the partnership agreement provides a formula for the computation of a bonus to
the partners, the bonus would be computed *
Next to last, because the final allocation is the distribution of the profit residual.
Before income tax allocations are made.
After the salary and interest allocations are made.
In any manner agreed to by the partners.
When property other than cash is invested in a partnership, at what amount should
the noncash property be credited to the contributing partner’s capital account? *
Fair value at the date of contribution.
Assessed valuation for property tax purposes.
Contributing partner's tax basis.
Contributing partner's original cost.
If goodwill is traceable to the previous partners, it is *

Not possible for goodwill to also be traceable to the incoming partner.
Allocated among the previous partners according to their interest in capital.
Allocated among the previous partners only if there are not other assets to be revalued.
Allocated among the previous partners according to their original profit and loss sharing
precentages.
For financial accounting purposes, assets of an individual partner contributed to a

partnership are recorded by the partnership at *
Historical cost
Agreed value set by partners
Fair market value
Lower or cost or market
When the investment of a new partner exceeds the new partners’ initial capital
balance and goodwill is not recorded, who will receive the bonus? *
The new partner.
The old partners in their old profit and loss ratio.
The old partners in their new profit and loss ratio.
The old and new partners in their new profit and loss ratio.
Under the entity theory, a partnership is *
viewed through the eyes of the partners.
viewed as having its own existence apart from the partners.
a separate legal and tax entity
unable to enter into contracts in its own name.
The fact that salaries paid to partners are not a component of partnership income is
indicative of *
A departure from generally accepted accounting principles.
Being characteristics of the entity theory.
Being characteristics of the proprietary theory.
Why partnerships are characterized by unlimited liability.
The drawing ledger accounts of limited liability partners are used: *

To record the partners’ salaries
To reduce the partners’ capital account balances at the end of an accounting period.
In the same manner as the partners’ loan accounts.
To record the partners’ share of net income or loss for an accounting period.
Correct answer
To record the partners’ share of net income or loss for an accounting period.
If the partnership agreement provides for the division of losses only. Profits should
be divided: *
Equally
According to beginning capital ratio.
According to ending capital ratio.
According to average capital ratio.
Correct answer
According to beginning capital ratio.
The goodwill and the bonus methods are two means of adjusting for differences
between the net book value and the fair market value of partnership when new
partners are admitted. Which of the following statements about these methods is
correct? *
Both methods result in the same total value of partner capital account, but the individual capital
account vary.
Both methods results in the same balances in the partner capital accounts.
The bonus method does not revalue assets to market values.
The bonus method revalues assets to market values.
Which of the following is not considered a legitimate expense of a partnership? *
Supplies used in the partners’ offices.
Salaries for management hired to run the business.
Interest paid to partners based on the amount of invested capital.
Depreciation on assets contributed to the partnership by partners.

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FIRST TRINAL EXAMINATION

Which of the following results in dissolution of a partnership? *

When a partner is admitted to a partnership, an original partner’s capital account may

The disadvantages of the partnership form of business organization, compared to

Which of the following is not a characteristics of the proprietary theory that

Which of the following statements are incorrect? *

Which of the following statements are incorrect? *

Which of the following is not an advantage of a partnership over a corporation? *

A partnership is formed by two individuals who were previously sole proprietors.

If goodwill is traceable to the previous partners, it is *

For financial accounting purposes, assets of an individual partner contributed to a

The drawing ledger accounts of limited liability partners are used: *

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