Answered: The following are advantages of a…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

1. The following are advantages of a partnership over a sole proprietorship, except: *

-Capacity to act as legal unit

-Ease of formation

-Higher feasibility of greater undertakings

-Better management

-answer not given

2.The following are true for both general and limited partnership, except:

-Both have at least one general partner

-Both can easily be dissolved

-All partners have the right to share in partnership profits

-All partners are liable for all debts of the partnership

-Answer not given

3.[S1] Joint ownership of properties means that all assets invested by individual partners is owned by the partnership. [S2] Mutual agency means that each partner can make binding agreements for the partnership.

-Both are true

-both are false

-S1 is true

-S2 is true

4. When the partnership assets are not sufficient to pay its debts: *

A. limited partners are not personally liable for the debts

B. general partners must pay the remaining partnership debts using their personal assets

C. the partnership must be converted to a corporation

D. both A and B are correct

E. answer not given

5.Which account/s have a normal credit balance? *

-Loan to partner

-Partner’s capital

-Partner’s drawing

-Due from partner

-All of the above accounts except partner’s drawing

6. Which statement is correct? *

-Non-cash contributions of partners shall be recorded based on agreed value, which usually approximates fair value at the date of its transfer to the partnership

-An industrial partner ‘s liability is only up to the extent of his capital contribution

-The life of a partnership is unlimited.

-Funds extended by a partner to the partnership as a loan shall be accounted for by crediting the partner’s capital account.

-None of the above

7. Which is not normally included in the Articles of Partnership? *

-Contributions of partners

-Duties and rights of partners

-Profit and loss agreement

-Kinds of creditors

-answer not given

8. [S1] The accrual basis principle is used in accounting for partnership operation. [S2] When expenses exceed revenues, the income summary account will have a debit balance before it is closed to the capital account. *

-both are true

-both are false

-S1 is true

-S2 is true

9.In the absence of any agreement, profits and losses shall be divided *

-equally

-based on original capital

-based on ending capital

-based on weighted average capital

-answer not given

10.

When capital contribution is considered to be the primary factor in the level of income to be earned by the partnership, the most equitable profit and loss distribution will be based on _______balances. *

-beginning capital

-ending capital

-simple average capital

-weighted average capital

-original capital

Definition Definition Arrangement between two or more people whereby they agree to manage business operations and share its profits and losses in an agreed ratio. The agreement drafted and signed by the partners of the firm is termed as a partnership deed and contains various important clauses agreed between the partners such as profit/loss sharing, interest on capital, remuneration allocation of each partner, and drawings of a partner.

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