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Interactive Quiz
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1
John and Jerry are both lawyers. They form a law partnership. The articles of partnership specify that the firm may engage in any business that is lawful within the United States. Two weeks after the partnership is formed Jerry goes out and, without John's knowledge, buys a $20,000 computer system for the partnership. John refuses to allow partnership assets to be used to pay the $20,000. The business that sold the computer system to Jerry sues the partnership in court and wins the case. This situation is an application of which partnership characteristic?
A)Unlimited liability.
B)No federal income taxation of partnerships.
C)Limited life.
D)Mutual agency.
E)None of the above.
2
Which two characteristics are true of partnerships?
A)(1) They are subject to federal income taxation and (2) they do not have limited life.
B)(1) They are not subject to federal income taxation and (2) they have unlimited life.
C)(1) They are not subject to federal income taxation and (2) they have limited life.
D)(1) They are not subject to federal income taxation and (2) they do not have limited life.
E)None of the above.
3
Which set of characteristics is true of limited partners?
A)(1) Limited partners may participate in the daily operations of the partnership, and (2) they have unlimited liability.
B)(1) Limited partners may not participate in the daily operations of the partnership, and (2) they have unlimited liability.
C)(1) Limited partners may participate in the daily operations of the partnership, and (2) they have limited liability.
D)(1) Limited partners may not participate in the daily operations of the partnership, and (2) they have limited liability.
E)None of the above.
4
Which two features characterize limited liability companies?
A)The members (1) have limited liability, and (2) do not participate in the daily operations of the company.
B)The members (1) have unlimited liability, and (2) do not participate in the daily operations of the business.
C)The members (1) have unlimited liability, and (2) do participate in the daily operations of the company.
D)The members (1) have limited liability, and (2) do participate in the daily operations of the company.
E)None of the above.
5
Two partners share profits and losses in a ratio of 60:40. The first partner is given a salary allowance of $20,000 while the second partner is given a salary allowance of $25,000. The partners are also given an interest allowance equal to 10% of their initial capital account balances. Their initial capital account balances were $30,000 for the first partner and $50,000 for the second partner. If net income for the period is $60,000, how much will be allocated to each of the partners?
A)$30,000 to the first partner and $30,000 to the second partner.
B)$36,000 to the first partner and $24,000 to the second partner.
C)$27,200 to the first partner and $32,800 to the second partner.
D)$32,800 to the first partner and $27,200 to the second partner.
E)None of the above.
6
What are the acceptable methods of admitting a new partner into a partnership?
A)The incoming partner buys the entire interest directly from an existing partner.
B)The incoming partner buys part of an existing partner's interest directly from the existing partner.
C)The incoming partner buys part of the existing partnership interest directly from two or more existing partners.
D)The incoming partner buys his or her interest directly from the partnership.
E)All of the above methods are acceptable.
7
An interest in a partnership is considered to be a capital asset under our federal tax laws. When such an interest is sold at a gain, the gain is taxable. When such an interest is sold at a loss, the loss is usually deductible for tax purposes. Incoming partner Thane purchases all of existing partner Maryam's partnership interest for $50,000. At this time, the balance in Maryam's capital account is $35,000. The partnership agrees to accept Thane as a partner. How much gain or loss will Maryam have for tax purposes and what will be the balance in Thane's capital account immediately after she is admitted to the partnership?
A)Maryam has a $15,000 loss and Thane has an initial capital balance of $50,000.
B)Maryam has a gain of $15,000 and Thane has an initial capital balance of $50,000.
C)Maryam has a loss of $15,000 and Thane has an initial capital balance of $35,000.
D)Maryam has a gain of $15,000 and Thane has an initial capital balance of $35,000.
E)None of the above.
8
A partnership consists of four partners: Joe, Susan, Ray, and Tom who share profits and losses in the percentages of 20%/25%/30%/25%. The current balances in their respective capital accounts are $22,000, $30,000, $44,000, and $50,000. Incoming partner Dan buys 50% of Joe's interest for $15,000 and he also buys 50% of Ray's interest for $25,000. These transactions take place directly between Dan, Joe, and Ray. How much will be credited to Dan's capital account?
A)$66,000.
B)$33,000.
C)$40,000.
D)$36,000.
E)None of the above.
9
Partners A and B have existing capital balances of $30,000 and $40,000 and share profits and losses in a ratio of 70%/30%. Incoming partner C invests $40,000 for a 25% interest in profits and losses. How much will be credited to the capital account of the incoming partner?
A)$40,000.
B)$10,000.
C)$27,500.
D)$30,000.
E)None of the above.
10
Partners A and B have existing capital balances of $50,000 and $70,000 and share profits and losses in a ratio of 60%/40%. Incoming partner C invests $58,000 for a 30% interest in profits and losses. Any difference between what is invested by partner C will be treated as a bonus to or from the existing partners. How will the bonus be handled?
A)$2,760 will be debited to Partner A's capital account and $1,840 will be debited to Partner B's capital account.
B)$1,840 will be credited to Partner A's capital account and $2,760 will be credited to Partner B's capital account.
C)$2,760 will be credited to Partner A's capital account and $1,840 will be credited to Partner B's capital account.
D)$4,600 will be credited to C's capital account.
E)None of the above.
11
ABC Partnership has four partners who share profits and losses equally. On December 1, 2009, the balances in the partner's capital accounts were: $40,000, to Partner A; $50,000 to Partner B; $30,000 to Partner C; and $80,000 to Partner D. Partner C wishes to retire from the partnership. After due negotiations with the partners, the partnership agrees to pay Partner C $39,000 for his interest. What will the balances in the capital accounts of A, B, C, and D after the payment is made to C?
A)A = $40,000; B = $50,000; C = $0; and D = $80,000.
B)A = $37,000; B = $47,000; C = $0; and D = $77,000.
C)A = $43,000; B = $53,000; C = $0; and D = $83,000
D)A = $40,000; B = $50,000; C = $30,000; and D = $80,000.
E)None of the above.
12
The ABCD partnership has sold all of its assets and has paid off all of its debts just prior to final liquidation. The partners share profits and losses in a ratio of 15%/20%/25%/40%. Partner B, the 20% partner, has a deficit in his capital account of $60,000 and is personally insolvent. How much of B's capital deficiency will Partner D have to absorb?
A)$20,000.
B)$60,000.
C)$24,000.
D)$30,000.
E)None of the above.
13
Three people form a new partnership. The first one contributes $19,000 in cash. The second one contributes a piece of land on which a building suitable for the partnership's purposes is constructed. The book values of the land and building as recorded on the second person's books are $20,000 and $100,000, but the present fair market values are $25,000 and $190,000, respectively. There is a $60,000 mortgage payable on the building, which the partnership is willing to assume. The third person contributes a used automobile which has a book value of $5,000 and a fair market value of $9,000. There is a small note payable on the automobile of $2,000, which the partnership agrees to assume. At what amounts will the land, building, and automobile be recorded on the books of the partnership?
A)$20,000, $100,000, and $5,000.
B)$20,000, $100,000, and $9,000.
C)$25,000, $190,000, and $9,000.
D)$25,000, $190,000, and $7,000.
E)None of the above.
14
Three people form a new partnership. The first one contributes $19,000 in cash. The second one contributes a piece of land on which a building suitable for the partnership's purposes is constructed. The book values of the land and building as recorded on the second person's books are $20,000 and $100,000, but the present fair market values are $25,000 and $190,000, respectively. There is a $60,000 mortgage payable on the building, which the partnership is willing to assume. The third person contributes a used automobile which has a book value of $5,000 and a fair market value of $9,000. There is a small note payable on the automobile of $2,000, which the partnership agrees to assume. What amount will be credited to each partner's capital account after these contributions have been made?
A)$19,000, $120,000, and $5,000.
B)$19,000, $60,000, and $3,000.
C)$19,000, $155,000, and $7,000.
D)$48,000, $48,000, and $48,000.
E)None of the above.
15
XYZ Partnership's equity at the end of 2009 totaled $350,000 ($122,500 from X, $70,000 from Y, and $157,500 from Z.) For the year ended December 31, 2010, net income is $60,000 ($21,000 allocated to X, $12,000 allocated to Y, and $27,000 allocated to Z.) Year-end total partnership equity is $375,000 ($131,250 from X, $75,000 from Y, and $168,750 from Z.) Compute the individual partner return on equity ratio for Partner Y.
A)80.0%
B)14.1%
C)82.8%
D)16.6%
E)Partner Y did not have a return on equity.





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