Chapter 8 & 13

A. The "bonus method" can be used even in the presence of an intangible asset if the partners agree.

Which of the following best describes the accounting for partnership formation when partners are assigned balances that do not equal their capital contributions? Select one: A. The "bonus method" can be used even in the presence of an intangible asset if the partners agree. B. The "bonus method" relates to the recognition of an intangible asset upon formation of the partnership. C. The partnership can apply either the "bonus method" or the "goodwill method" to account for the contribution without restriction. D. This scenario is not possible since all capital accounts must be proportional to the relative contributions of the partners.

A requirement that all financial statements will be prepared in accordance with GAAP.

The partnership agreement does not include one of the following: Language relating to the formation, ongoing operation, and ultimate dissolution of the partnership. A requirement that all financial statements will be prepared in accordance with GAAP. Language relating to the way in which profit and loss is to be allocated to the partners' Capital Accounts. Language relating to whether the partners wish to recognize the intangible asset on the books of the partnership upon formation of the partnership.

C. Both A and B.

Which of the following best describes the accounting for changes in partnership ownership? Select one: A. A common practice when admitting a new partner to a partnership is to revalue the partnership net assets to fair value. B. The purchase of a partnership interest in a transaction between old and new partners requires a journal entry in the partnership records. C. Both A and B. D. Neither A nor B.

D. The assets of the partnership must be converted to cash used to pay the obligations to creditors, including partners who are creditors, and any remaining cash must be distributed to the partners in accordance with the relative proportions of their Capital Accounts.

Which of the following does not accurately describe the process relating to the dissolution of a partnership? Select one: A. Profits (losses) that result from the liquidation of the partnership assets must be credited (charged) to the partners' Capital Accounts. B. If a partner's Capital Account becomes negative as a result of the sales of assets, the partner must make a cash contribution to the partnership in an amount sufficient to bring the Capital Account to a zero balance. C. If a partner fails to contribute the full amount required, all of the other partners shall contribute (in their profit-sharing ratios) the additional amount necessary to satisfy the partnership obligations. In the event of such contribution, the partners shall have the right to sue the partner with the unfunded negative Capital Account for the amount owed to the partnership D. The assets of the partnership must be converted to cash used to pay the obligations to creditors, including partners who are creditors, and any remaining cash must be distributed to the partners in accordance with the relative proportions of their Capital Accounts.

A. From a tax standpoint, the taxing authorities view the partnership as a taxable entity and tax its profit like other forms of organization.

Which of the following does not describe the partnership form of organization? Select one: A. From a tax standpoint, the taxing authorities view the partnership as a taxable entity and tax its profit like other forms of organization. B. Partnerships allow numerous individuals to combine their efforts for a variety of business purposes in an organization that can last indefinitely. C. Partnerships pass through liabilities to the partners. D. Partnerships can survive the admission of new partners and the disassociation of existing partners as they retire.

A. The differential in value resulting from the revaluation of assets is recognized as a gain or loss in the partnership income statement.

Which of the following is not true about the accounting for changes in partnership ownership involving revaluation of net assets? Select one: A. The differential in value resulting from the revaluation of assets is recognized as a gain or loss in the partnership income statement. B. The gains and losses that result from pre-realignment revaluation are allocated to the existing partners' Capital Accounts in the revaluation profit-and-loss-sharing ratio designated in the Partnership Agreement. C. If net assets are measured at fair value, the partners have the best possible chance of allocating partner Capital Accounts in a fair and unbiased manner. D. When partnership net assets are revalued in anticipation of a realignment transaction, the resulting gains and losses accrue only to the partners who have an ownership interest in the entity during the period in which the net assets changed in value.

A. The journal entry to record the payment of interest on Capital Account balances involves a debit to interest expense.

Which of the following statements about interest on the Capital Account is false? Select one: A. The journal entry to record the payment of interest on Capital Account balances involves a debit to interest expense. B. Interest paid on Capital Account balances is treated as a form of profit allocation like salary. C. The interest rate is specified in the Partnership Agreement. D. Interest paid on Capital Account balances is not treated like interest on debt for accounting purposes.

D. All of the above are true.

Which of the following statements about the allocation of partnership profit or loss is false? Select one: A. Partnership agreements sometimes allow for a salary payment as part of the profit allocation process, computed as a fixed payment or variable rate based on some measure of output. B. Salary payment is allocated to the partner and the net profit after this payment is allocated to the partners based on a profit-sharing ratio. C. Uniform Partnership Act of 1997 states that a partner is not entitled to remuneration for services performed for the partnership. D. All of the above are true.

D. All of the above are true.

Which of the following statements is false regarding the allocation of profit to partners? Select one: A. The allocation of remaining profit to the partners is based on a sharing ratio that is described in the Partnership Agreement. B. The Partnership Agreement can provide for different sharing ratios in the event of a profit or a loss. C. The profit sharing ratio does not have to conform to the partners' respective Capital Account balances. D. All of the above are true.

A. Partners may only contribute cash to the partnership which, then, purchases all of its assets.

Which of the following statements is false regarding the formation of a partnership? Select one: A. Partners may only contribute cash to the partnership which, then, purchases all of its assets. B. Capital Accounts are credited to represent the claim of the partners to the net assets of the partnership. C. The Capital Account for an individual partner does not need to be equal to the amount that the partner has contributed to the partnership. D. All of the above are true.

B. Cash paid to partners is called a dividend.

Which of the following statements is false? Select one: A. Cash paid to a partner for services performed for the partnership is not recognized as an expense. B. Cash paid to partners is called a dividend. C. Profit and loss can be allocated to individual partners in a ratio that is different form the relative proportion of their capital accounts. D. The partner Capital Account is updated in a manner that is similar to the way in which we update Retained Earnings for a corporation.

D. All of the above are true.

Which of the following statements is false? Select one: A. Partners may contribute additional capital to the partnership in the form of cash and other assets. B. Withdrawals of cash by the partners are called "drawings." C. The partnership income statement includes revenues and expenses but not salary paid to partners. D. All of the above are true.

A. Partnerships are required to issue financial statements that are prepared in conformity with GAAP.

Which of the following statements is not correct about the accounting for partnerships? Select one: A. Partnerships are required to issue financial statements that are prepared in conformity with GAAP. B. Partnerships are not necessarily required to issue financial statements that are prepared in conformity with GAAP. C. Partnerships don't have stockholders' equity like corporations do. D. Partnerships are a legal entity and, as such, they must issue financial statements.

D. All of the above are true.

Which of the following statements is not true about limited liability partnerships (LLPs)? Select one: A. In an LLP, all partners have a form of limited liability, similar to that of the shareholders of a corporation. B. Unlike corporate shareholders, the partners have the right to manage the business directly rather than through a board of directors C. In addition to structuring the partnership as an LLP, professional service organizations also typically maintain a significant amount of malpractice insurance as additional protection. D. All of the above are true.

D. Each partner is only liable for his or her proportionate share of the partnership liabilities based on their relative share of total partnership capital.

Identify the provision that is not typically contained in a partnership agreement Select one: A. A partnership is liable for loss as a result of a wrongful act of a partner acting in the ordinary course of business of the partnership. B. Each partner can act for the partnership. C. The partnership can buy and sell assets, enter into contracts, and borrow money. D. Each partner is only liable for his or her proportionate share of the partnership liabilities based on their relative share of total partnership capital.