Advanced Financial Exam 3

The High and Low partnership agreement stipulates that profits and losses be assigned in the following manner: High receives a 15 percent bonus of total partnership income. High receives a salary of $45,000. Any remaining profits or losses are allocated equally. During the current year, the partnership had a net income $50,000 before the bonus and salary allowance. Low's capital account in the partnership would:

Decrease.

When a partnership is insolvent and a partner has a deficit capital balance, that partner is legally required to:

contribute cash to the partnership.

In the absence of a written partnership agreement, profit and loss will be allocated in proportion to the partners' beginning capital balances.

false

Which one of the following is an advantage of the partnership form of business organization as compared to the corporate form of business organization?

partnership income is only taxed once on the partners' individual income tax returns.

A disadvantage of a partnership is mutual agency, meaning each partner can bind the partnership to legally enforceable contracts.

true

At the formation of a partnership, tangible assets should be recorded at their estimated fair market values at the date of contribution to the partnership.

true

Partnerships are flow-through entities for tax purposes, meaning there is no entity-level tax and a proportionate share of the partnership's income is reported on each partner's income tax return.

true

n corporate accounting, a Dividend account is common. In partnership accounting, a Drawing account is maintained for each partner to record the withdrawals during the year.

true

Which one of the following is a disadvantage of the partnership form of business organization as compared to the corporate form of organization?

unlimited liability for the partners.

Which of the following is not a characteristic of a partnership?

A partnership requires a written operating agreement.

Which one of the following statements is incorrect regarding a predistribution plan?

A predistribution plan is prepared at the end of a liquidation to confirm actual cash distributions.

In accounting for the liquidation of a partnership, cash payments to partners after all creditors' claims have been satisfied, but before final cash distribution, should be according to:

Capital account balances.

A guideline for the cash distributions to be made to the partners during a liquidation is called:

Predistribution plan.

A partnership is liquidating and one of the partner's capital accounts has a deficit balance. What should happen?

The partner with the deficit should contribute enough personal assets to eliminate the deficit balance.

An existing partner has the legal right to sell his or her partnership interest to a new partner. However, the new partner has no right to share in management until the existing partners agree to allow her to do so.

True

In a partnership liquidation, how is the final allocation of business assets made to the partners?

according to the balances of the partners' loan and capital accounts

At the formation of a partnership, the partners' beginning capital balances must always be equal to their contributions of tangible assets.

false

In a general partnership, each partner is only liable for up to the amount of their capital investment.

false

In a partnership agreement, losses must be allocated in the same proportion as profits.

false

In order for a partnership to be valid, a written partnership agreement is required.

false