Acctg 32 - Accounting for Special Transactions

Name: ________________________
Class: ___________________ Date: __________

Short Exam 01: Partnership Formation

Multiple Choice
Identify the choice that best completes the statement or answers the question.

____ 1. Which of the following is not a characteristic of a partnership?

a. Each partner has the power to obligate the partnership for liabilities.
b. The partnership itself does not pay income taxes.
c. Any partner can be held personally liable for all debts of the business.
d. All partnerships require written articles of partnership.
e. It is easy to form a partnership.

____ 2. The disadvantage of the partnership form of business organization, compared to corporations, include
a. The complexity of operations
b. Requirement for partnerships to pay income taxes
c. Unlimited liability for the partners
d. The legal requirements for formation
e. The extent of government regulation

____ 3. A partner's withdrawal of assets that is considered a permanent reduction of that partner's equity in the
partnership is debited to the partner's
a. Capital Account c. Drawing Account
b. Loan Receivable from Partner d. Retained Earnings

____ 4. The drawing account of a partner, in substance, is:

a. a capital account c. a contra-capital account
b. an expense account d. none of the above

____ 5. When property is invested in a partnership, at what amount should the noncash property be credited to the
contributing partner's capital account?
a. Assessed valuation for tax purposes c. Book value of the contributing partner
b. Fair value at time of contribution d. Original cost of the contributing partner

____ 6. How does partnership accounting differ from corporate accounting?

a. Revenues are recognized at a different time by a partnership than is appropriate for a
corporation.
b. Individual capital accounts replace the contributed capital account and retained earnings
found in corporate accounting.
c. The matching principle is not applicable to partnerships.
d. Partnerships report all assets at fair value as of the latest balance sheet date.

____ 7. Under the bonus method of determining the partner's capital credit,
a. Total partnership capital is less than the fair value of the net contributions to the
partnership.
b. Total partnership capital is less than the fair value of the net contributions to the
partnership, if the bonus is given to an incoming partner.
c. Total partnership capital is greater than the fair value of the net contributions to the
partnership.
d. Total partnership capital is equal to the fair value of the net contributions to the
partnership.

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Name: ________________________ ID: A

____ 8. Transactions between and among the partners are

a. recorded in the partners' individual books.
b. not recorded in either the partners' or partnership books.
c. recorded in the partnership books.
d. recorded both in the partners' and partnership books.

____ 9. During the formation of the partnership of X and Y, cash contributions of P50,000 were received from X, but
X's capital account in the partnership records was recorded at P70,000. Which of the following statements
is true?
a. Goodwill of P20,000 was recognized upon formation of the partnership.
b. X gave a bonus of P20,000 to Y
c. Y invested an additional P20,000 to the partnership.
d. X received a bonus of P20,000 from Y

____ 10. Which of the following would decrease a partner's capital account?
a. Temporary withdrawals during the period.
b. Share in the partnership net profit.
c. Receiving a bonus from another partner.
d. Giving a bonus to another partner.

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 ID: A

Short Exam 01: Partnership Formation

Answer Section

MULTIPLE CHOICE

1. ANS: D PTS: 1
2. ANS: C PTS: 1
3. ANS: A PTS: 1
4. ANS: C PTS: 1
5. ANS: B PTS: 1
6. ANS: B PTS: 1
7. ANS: D PTS: 1
8. ANS: A PTS: 1
9. ANS: D PTS: 1
10. ANS: D PTS: 1