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| 1.
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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 |
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| 2.
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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. |
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| 3.
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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. |
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| 4.
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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 |
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| 5.
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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 |
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| 6.
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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) | $15,000 |
| | B) | $20,000 |
| | C) | $42,000 |
| | D) | $32,000 |
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| 7.
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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 |
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| 8.
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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 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) | both (a) and (b) |
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| 9.
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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 |
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| 10.
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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 |
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| 11.
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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) | 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 |
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| 12.
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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 |
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| 13.
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| 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 |
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| 14.
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| 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 |
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| 15.
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Karen has a capital balance of $30,000, and she sold one-third of her partnership interest to Kelly for $15,000. What is the correct journal entry for this transaction? |
| | A) | debit Cash $15,000, and credit Kelly capital $10,000 and Karen capital 5,000. |
| | B) | debit Karen capital $15,000 and credit Kelly capital $15,000. |
| | C) | debit Cash $5,000 and Karen capital $10,000, and credit Kelly capital $15,000 |
| | D) | debit Karen capital $10,000 and credit Kelly capital $10,000 |
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| 16.
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Karen has a capital balance of $40,000 and Kyle has a capital balance of $ 60,000. They accepted Kelly to the partnership for an investment of $20,000. Kelly owns 10% of the interest in the partnership. Which of the following is correct? |
| | A) | debit Cash $20,000, credit Kelly, Capital $20,000. |
| | B) | debit Karen, Capital $10,000, Kyle, Capital $10,000, and credit Kelly, Capital $20,000. |
| | C) | debit Cash $12,000, credit Kelly, Capital $12,000. |
| | D) | debit Cash $20,000, credit Kelly, Capital $12,000, Karen, Capital $4,000, Kyle, Capital $4,000. |
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