Formation and Operation of Partnerships Flashcards
Which of the following is not a characteristic of a partnership?
a. The partnership itself pays no income taxes
b. It is easy to form a partnership
c. Any partner can be held personally liable for all debts of the business
d. A partnership requires written Articles of Partnership
e. Each partner has the power to obligate the partnership for liabilities
d. A partnership requires written Articles of Partnership
Which of the following has most of the characteristics of a general partnership except that it significantly reduces the partners’ liability?
a. general partnership
b. limited partnership
c. subchapter S partnership
d. limited liability partnership
e. limited liability company
d. limited liability partnership
Which of the following statements is correct regarding the admission of a new partner?
a. A new partner must purchase a partnership interest directly from the business
b. The right of co-ownership in the business property can by transferred to a new partner without the consent of other existing partners.
c. The right to participate in management of the business cannot be conveyed without the consent of other existing partners.
d. The right to share in profits and losses can be sold to a new partner without the consent of other existing partners.
e. A new partner always pays books value.
c. The right to participate in management of the business cannot be conveyed without the consent of other existing partners.
The dissolution of a partnership occurs
a. only when the partnership sells its assets and permanently closes its books.
b. only when a partner leaves the partnership.
c. at the end of each year, when income is allocated to the partners.
d. only when a new partner is admitted to the partnership.
e. when there is any change in the individuals who make up the partnership.
e. when there is any change in the individuals who make up the partnership.
The disadvantages of the partnership form of business organization, compared to corporations, include
a. the legal requirements for formation.
b. unlimited liability for the partners.
c. the requirement for the partnership to pay income taxes.
d. the extent of governmental regulation.
e. the complexity of operations.
b. unlimited liability for the partners.
Which of the following could be used as a basis to allocate profits among partners who are active in the management of the partnership?
1) Allocation of salaries.
2) The number of years with the partnership.
3) The amount of time each partner works.
4) The average capital invested.
a. 1 and 2
b. 1 and 3
c. 1, 2, and 4
d. 1, 3, and 4
e. 1, 2, 3, and 4
e. 1, 2, 3, and 4
When Danny withdrew from John, Daniel, Harry, and Danny, LLP, he was paid $80,000, although his capital account balance was only $60,000. The four partners shared net income and losses equally, and no revaluation will take place. The journal entry to record the effect on John’s capital due to Danny’s withdrawal would include:
a. $6,667 debit to John, Capital
b. $6,667 credit to John, Capital
c. $20,000 debit to John, Capital
d. $5,000 debit to John, Capital
e. $5,000 credit to John, Capital
a. $6,667 debit to John, Capital
Goodman, Pinkman, and White formed a partnership on January 1, 2020, and made capital contributions of $125,000 (Goodman), $175,000 (Pinkman), and $250,000 (White), respectively. With respect to the division of income, they agreed to the following: (1) interest of an amount equal to 10% of the that partner’s beginning capital balance for the year; (2) annual compensation of $15,000 to Pinkman; and (3) the remainder of the income or loss to be split among the partners in the following percentages: (a) 20% for Goodman; (b) 40% for Pinkman; and (c) 40% for White. Net income was $200,000 in 2020 and $240,000 in 2021. Each partner withdrew $1,500 for personal use every month during 2020 and 2021.
What was White’s total share of net income for 2020?
a. $95,000
b. $84,500
c. $77,000
d. $25,000
e. $52,000
c. $77,000 ?
A partnership began its first year of operations with the following capital balances:
$143,000 - Young, Capital
$104,000 - Eaton, Capital
$143,000 - Thurman, Capital
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 and $13,000 salary was to be awarded to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.
What was Thurman’s total share of net loss for the first year?
a. $3,900 loss
b. $11,700 loss
c. $10,400 loss
d. $24,700 loss
e. $9,100 loss
a. $3,900 loss
The capital account balances for Donald & Hanes LLP on January 1, 2021, were as follows:
$200,000 - Donald, Capital
$100,000 - Hanes, Capital
Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to admit May to the partnership with a 35% interest in partnership capital and net income. May invested $100,000 cash, and no goodwill was recognized.
What is the balance of Hanes’s capital account after the new partnership is created?
a. $84,000
b. $100,000
c. $140,000
d. $176,000
e. $200,000
a. $84,000
