Test 1

23 Questions  I  By Deltzx301
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  • 1. 
    Cherryhill and Hace had been partners for several years, and they decided to admit Quincy to the partnership.  The accountant for the partnership believed that the dissolved partnership and the newly formed partnership were two separate entities.  What method would the accountant have used for recording the admission of Quincy to the partnership? 
    • A. 

      The bonus method.

    • B. 

      The equity method.

    • C. 

      The goodwill method.

    • D. 

      The proportionate method.

    • E. 

      The cost method.


  • 2. 
    When the hybrid method is used to record the withdrawal of a partner, the partnership 
    • A. 

      Revalues assets and liabilities and records goodwill to the continuing partner but not to the withdrawing partner.

    • B. 

      Revalues liabilities but not assets, and no goodwill is recorded.

    • C. 

      Can recognize goodwill but does not revalue assets and liabilities.

    • D. 

      Revalues assets but not liabilities, and records goodwill to the continuing partner but not to the withdrawing partner.

    • E. 

      Revalues assets and liabilities but does not record goodwill.


  • 3. 
    The disadvantages of the partnership form of business organization, compared to corporations, include 
    • A. 

      The legal requirements for formation.

    • B. 

      Unlimited liability for the partners.

    • C. 

      the requirement for the partnership to pay income taxes.

    • D. 

      The extent of governmental regulation.

    • E. 

      The complexity of operations.


  • 4. 
    The advantagesof the partnership form of business organization, compared to corporations, include 
    • A. 

      Single taxation

    • B. 

      Ease of raising capital

    • C. 

      Mutual agency

    • D. 

      Limited liabiility

    • E. 

      Difficulty of formation


  • 5. 
    advantagesof the partnership form of business organization, compared to corporations, include 
    • A. 

      Only when the partnership sells its assets and permanently closes its books.

    • B. 

      Only when a partner leaves the partnership.

    • C. 

      At the end of each year, when income is allocated to the partners.

    • D. 

      Only when a new partner is admitted to the partnership.

    • E. 

      When there is any change in the individuals who make up the partnership.


  • 6. 
    The partnership of Clapton, Seidel, and Thomas was insolvent and will be unable to pay $30,000 in liabilities currently due.  What recourse was available to the partnership's creditors? 
    • A. 

      A) they must present equal claims to the three partners as individuals.

    • B. 

      B) they must try obtain a payment from the partner with the largest capital account balance.

    • C. 

      C) they cannot seek remuneration from the partners as individuals.

    • D. 

      D) they may seek remuneration from any partner they choose.

    • E. 

      E) they must present their claims to the three partners in the order of the partners' capital account balances.


  • 7. 
    Which of the following is not a characteristic of a partnership? 
    • A. 

      A) The partnership itself pays no income taxes.

    • B. 

      B) It is easy to form a partnership.

    • C. 

      C) Any partner can be held personally liable for all debts of the business.

    • D. 

      D) A partnership requires written Articles of Partnership.

    • E. 

      E) Each partner has the power to obligate the partnership for liabilities.


  • 8. 
    Partnerships have alternative legal forms including all of the following except
    • A. 

      Partnership

    • B. 

      B) Limited Partnership.

    • C. 

      C) Subchapter S Corporation.

    • D. 

      D) Limited Liability Partnership.

    • E. 

      E) Limited Liability Company.


  • 9. 
    Which of the following type of organization is classified as a partnership, or similar to a partnership, for tax purposes? (I.) Limited Liability Company (II.) Limited Liability Partnership (III.) Subchapter S Corporation 
    • A. 

      A) II only.

    • B. 

      B) II and III.

    • C. 

      C) I and II.

    • D. 

      D) I and III.

    • E. 

      E) I, II, and III.


  • 10. 
    35.  Which of the following statements is correct regarding the admission of a new partner? 
    • A. 

      A) A new partner must purchase a partnership interest directly from the business.

    • B. 

      B) The right of co-ownership in the business property can be transferred to a new partner without the consent of other existing partners.

    • C. 

      C) The right to participate in management of the business can be conveyed without the consent of other existing partners.

    • D. 

      D) The right to share in profits and losses can be sold to a new partner without the consent of other existing partners.

    • E. 

      A new partner always pays book value.


  • 11. 
    36. Withdrawals from the partnership accounts are typically not used  
    • A. 

      A) to record compensation for work performed in the business.

    • B. 

      B) to reduce the partners' capital account balances at the end of an accounting period.

    • C. 

      C) to record interest earned on a partner’s capital balance.

    • D. 

      D) to reduce the basic investment that has been made in the business.to record a reward for ownership in the partnership.


  • 12. 
    1.  What is a marshaling of assets? 
    • A. 

      A) a listing of estimated realizable values of a business's assets

    • B. 

      B) the order in which the creditors of a partnership will be paid as partnership assets are liquidated

    • C. 

      C) the order in which partners receive cash as partnership assets are liquidated

    • D. 

      D) a ranking of claims against an individual

    • E. 

      E) the order in which the partnership's assets are liquidated


  • 13. 
    20.  Which of the following will not result in the dissolution of a partnership? 1)  Partners are incompatible and choose to cease operations. 2)  Partners realize that the profit figures have failed to reach projected levels. 3)  Retirement of a partner. 4)  Death of a partner. 
    • A. 

      A) 1 and 2 only

    • B. 

      B) 3 and 4 only

    • C. 

      C) 1, 2, and 3

    • D. 

      D) 1, 2, 3, and 4

    • E. 

      E) Neither 1, 2, 3, or 4


  • 14. 
    21.  What accounting transactions are not recorded by an accountant during liquidation? 
    • A. 

      A) The conversion of partnership assets into cash.

    • B. 

      B) The allocation of the resulting gains and losses.

    • C. 

      C) The payment of liabilities and expenses.

    • D. 

      D) Remaining unpaid debts settled, and the distribution of any remaining assets to the partners based on their profit and loss ratio.


  • 15. 
    22.  Which of the following statements is false concerning the Schedule of Liquidation? 
    • A. 

      A) Liquidations may take a considerable length of time to complete.

    • B. 

      B) Frequent reporting by the accountant is rarely necessary.

    • C. 

      C) The Schedule of Liquidation provides a listing of transactions to date, current cash, and capital balances.

    • D. 

      D) The Schedule of Liquidation provides a listing of property still being held by the partnership and liabilities remaining unpaid.

    • E. 

      E) The Schedule of Liquidation keeps creditors and partners apprised of the results of the process of dissolution.


  • 16. 
    23.  What is the preferred method of resolving a partner's deficit balance, according to the Uniform Partnership Act? 
    • A. 

      A) Partners never have a deficit balance.

    • B. 

      B) The other partners must contribute personal assets to cover the deficit balance.

    • C. 

      C) The partnership must sell assets in order to cover the deficit balance.

    • D. 

      D) The partner with a deficit balance must contribute personal assets to cover the deficit balance.

    • E. 

      E) The partner with a deficit balance contributes personal assets only if those personal assets exceed personal liabilities.


  • 17. 
    24.  Which of the following statements is true concerning the distribution of safe payments? 
    • A. 

      A) The distribution of safe payments assumes that any capital deficit balances will prove to be a total loss to the partnership.

    • B. 

      B) Safe payments are equal to the recorded capital balances of partners with positive capital balances.

    • C. 

      C) The distribution of safe payments may only be made after all liabilities have been paid.

    • D. 

      D) In computing safe payments, partners with positive capital balances are assumed to absorb an equal share of any deficit balance(s).

    • E. 

      E) There are no safe payments until the liquidation is complete.


  • 18. 
    25.  Which of the following is the proper ranking order of property distributions stipulated by the Uniform Partnership Act? 
    • A. 

      A) Those owing to partners by way of contribution, those owing to partnership creditors, those owing to separate creditors.

    • B. 

      B) Those owing to separate creditors, those owing to partnership creditors, those owing to partners by way of contribution.

    • C. 

      C) Those owing to separate creditors, those owing to partners by way of contribution, those owing to partnership creditors.

    • D. 

      D) Those owing to partners by way of contribution, those owing to separate creditors, those owing to partnership creditors.

    • E. 

      E) Those owing to partnership creditors, those owing to partners by way of contribution, those owing to separate creditors.


  • 19. 
    26. Which statement below is correct?
    • A. 

      A) If a partner of a liquidating limited liability partnership is unable to pay a capital account deficit, the deficit is absorbed by the other partners in the income-sharing ratio of those partners.

    • B. 

      B) Gains and losses from the sale of noncash assets are divided in the ratio of the partners' capital account balances if there is no income-sharing plan in the partnership contract.

    • C. 

      C) A loan receivable from a partner is added to the partner's capital account balance in the preparation of a cash distribution plan.

    • D. 

      D) Partners may receive cash before creditors receive cash when liquidating a limited liability partnership.

    • E. 

      E) All cash payments to partners are made using their income-sharing ratio when liquidating the partnership.


  • 20. 
    27. The marshaling of assets doctrine regulates claims against an individual's assets.  The following lists groups interested in potential cash distributions. (1.) those owed to the creditors of the partnership (2.) those owed to separate creditors (3.) those owed to partners by way of contribution    When a partner is bankrupt, which order do claims against their property rank?
    • A. 

      A) 1, 2, 3.

    • B. 

      B) 2, 1, 3.

    • C. 

      C) 3, 2, 1.

    • D. 

      D) 1, 3, 2.

    • E. 

      E) 3, 1, 2.


  • 21. 
    28. Which statement below is false? 
    • A. 

      A) The purpose of a marshaling of assets is to protect the interests of various creditors.

    • B. 

      B) The marshaling of assets gives order and structure to the settling of claims.

    • C. 

      C) When a partner is insolvent, the partner's personal assets should first be used to settle the claims of his or her personal creditors.

    • D. 

      D) After a partner’s personal creditors are satisfied, any remaining personal assets may be used to pay creditors of the partnership.

    • E. 

      E) Partnership assets may be used to pay a partner’s personal creditor prior to payment to partnership creditors.


  • 22. 
    29. Which item is not shown on the schedule of partnership liquidation?
    • A. 

      A) Current cash balances.

    • B. 

      B) Property owned by the partnership.

    • C. 

      C) Liabilities still to be paid.

    • D. 

      D) Personal assets of the partners.

    • E. 

      E) Current capital balances of the partners.


  • 23. 
    30. Under the marshaling of assets doctrine, personal creditors can claim a partner’s share of partnership assets under which condition?
    • A. 

      A) When payment of all partnership debts is assured.

    • B. 

      B) When the insolvent partner has a positive capital balance.

    • C. 

      C) .When payment of all partnership debts is assured and the insolvent partner has a positive capital balance.

    • D. 

      D) When the other partner’s agree to the claim..

    • E. 

      E) Personal creditors can not claim a partner’s share of partnership assets.


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