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Select all that apply Accounting for a partnership's owners' equity tends to be much less complex than for a corporation because

partnerships tend to be smaller and have less complex equity transactions than corporations. government regulations require greater disclosures for corporations to protect the investing public and others

Assume the articles of partnership specify that profits are to be allocated 60% to partner A and 40% to partner B. If, however the articles of partnership are silent concerning the allocation of a partnership loss, then any loss is allocated

in the same manner as partnership profits.

Select all that apply When a new partner is admitted to a partnership as a result of a cash transaction between individual parties,

the new partner's admission has no impact on partnership tangible assets and liabilities. the transfer of ownership may be recorded by a capital reclassification from the current partners to the new partner.

Select all that apply Included in rights that a partner can convey in a transfer of ownership are

the right to participate in the management of the business if agreed upon by by all other partners. the right of co-ownership of the partnership business property. the rights to share in the profits and losses of the partnership.

Similar to initial partner contributions to begin a partnership, subsequent partner contributions to support ongoing operations or expansion should be credited to the contributing partner's capital account at (1) value.

1. fair

Which of the following is not a reason for forming a partnership as opposed to a corporation for a new business?

Partnership income typically flows tax-free to the partners.

Select all that apply What are some partnership activities that are considered capital transactions?

Retirement of a partner. Admission of a new partner. Allocation of partnership profits and losses.

Under the goodwill method to record a new partner's admission to a partnership, recognition of goodwill to the original partners is equitably allocated

according to the profit and loss percentages.

Periodic cash withdrawals from the partnership by individual partners are recorded initially as a credit to cash and a debit to a

drawing account.

A partner contributes a building to her partnership that has appreciated in value. The the partnership's valuation basis for the building should be

fair value.

Select all that apply Among common methods to account for the withdrawal of a partner from a partnership include the

goodwill method. hybrid (revaluation/bonus) method. bonus method.

At year end, a partner's drawing account

is closed to the partner's capital account.

Select all that apply Often a partner may sell his partnership interest to another individual. Why must all partners agree to allow this new partner the right to participate in the management of the partnership?

Current partners may be reluctant to yield management decision making that is essential to the well-being of the partnership. To protect the current partners from unwanted intrusion by the new partner.

Select all that apply When a new partner is formally admitted to a partnership

a legal dissolution of the previous partnership occurs. a new partnership is formed.

Select all that apply Included in the advantages of the partnership form of business organization are

a lower cost of formation compared to the corporate form. ease of formation. the ability to make any arrangement desired among the partners for income distribution and control of business decision making.

Select all that apply Ways in which an individual can gain admission into a partnership include

buying an ownership interest directly from one or more existing partners. contributing tangible assets directly to the partnership. contributing intangible assets directly to the partnership.

In determining the amount to pay a partner upon withdrawal, the partnership employs current assessments for both land and goodwill, This payment therefore

can be accounted for using either the goodwill, bonus, or hybrid method.

Select all that apply A limited partnership (LP)

has general partners who are designated to assume responsibility for all partnership debts. has investors whose liability may be limited to the amount they have invested in the partnership. often has investors that are not allowed to participate in the management of the partnership.

Select all that apply A limited liability company (LLC)

is classified as a partnership for tax purposes. with respect to partner liability is similar to a Subchapter S corporation. in many states limits a partner's risk to the amount he or she has invested in the partnership.

Select all that apply The articles of partnership document

largely determines the accounting procedures followed for the partnership. represents a legal agreement that governs the operation of the partnership. is a negotiated agreement created by the partners.

Any change in the set of specific individuals that comprise a partnership automatically leads to a legal (1).

1. dissolution

A limited partnership helps the individual partners protect their personal financial position through the avoidance of unlimited (1) from the partnership.

1. liability

Select all that apply A new partner exchanges a $20,000 cash payment to the partnership business for a 10% partnership ownership interest. Under the bonus method

the capital balance of the new partner will equal 10% of partnership net assets including the $20,000 cash payment. no revaluation of existing partnership assets takes place.

Despite the notion that a partnership is an extension of its individual partners, a noncash asset contributed to the partnership should be recorded at its contribution-date (1) value.

1. fair

When partners make cash contributions to a partnership, a credit to each individual partner's (1) account records the contribution.

1. capital

The emergence of several alternative partnership forms derives from the desire to avoid double taxation and

limit the personal liability exposure of individual partners.

Select all that apply A limited liability partnership (LLP)

limits the partners' individual liabilities resulting from damages awarded by a court. is a popular organizational form for major public accounting firms. does not limit individual partner's liability arising from contractual obligations of the partnership.

Select all that apply A Subchapter S Corporation

must have only one class of stock. is taxed in the same way as a partnership. provides limited liability to its owners.

Select all that apply Compared to a corporation's balance sheet, the owners' equity section of a partnership

typically provides a much more limited range of information. does not usually distinguish between contributed and earned capital. typically consists of solely partner's capital accounts.

Because a Subchapter S corporation pays no income taxes, but passes its income through to the tax returns of the individual owners, it avoids (1) taxation of its income.

1. double

Select all that apply Accounting methods for formally recording the admission of a new partner include

revaluing existing partnership assets to fair value and recognizing goodwill. retaining the partnership book value through the bonus method. revaluing existing partnership assets to fair value without recognizing goodwill.

Select all that apply Typically included in an articles of partnership agreement are

the rights and responsibilities of each partner. the procedures for admitting a new partner. how to distribute the profits and losses of the partnership.

If the articles of partnership are silent with regard to partnership income distribution to the individual partners, then

partnership income is allocated equally among all partners.

According to the Uniform Partnership Act, an obligation of a limited liability partnership arising from a contract is solely the obligation of the (1).

1. partnership

Alternative legal forms of partnerships have been provided in many state laws that both limit the liability of individual partners while maintaining the (1) benefits of the partnership form of business organization.

1. tax

Select all that apply Partnerships often serve as a preferred organization form for businesses compared to the corporate form because

partnerships are easier and less costly to form than corporations. tax benefits exist for partnerships relative to corporations. some state regulations prevent doctors and attorneys from forming corporations.

A partner receives an amount in excess of his/her capital balance upon withdrawing from the partnership. A possible reason for the excess payment is that the partnership agreement calls for a revaluation of the partnership to its (1) (2).

1. fair 2. value

Select all that apply Individual C is admitted with a 30% interest to the AB partnership in exchange for $50,000 cash paid to partners A and B. Why might C receive a capital credit for less that the $50,000 cash payment?

The partnership employed a book value approach where each partner transferred 30% of their interest to C. The ownership transfer was recorded by reclassifying partial capital balances to A without any asset revaluation. The $50,000 was paid to the current partners, not the partnership.

True or false: An advantage of a limited liability company (LLC) is that the number of owners is not restricted.

True

True or false: Upon a partner's withdrawal from a partnership, the resulting distribution will unlikely equal the balance in the partner's capital account.

True

According to the Internal Revenue Code, partnership income

flows through to the individual tax returns of the individual partners.