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Accounting 10th Edition Hoggett Test Bank
Accounting 10th Edition Hoggett Test Bank
Bank
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Testbank
to accompany
Accounting
10th edition
by
Hoggett et al.
Multiple-choice questions
1. The legislation in Australia that is concerned with the formation, operation and
dissolution of partnerships is the:
a. Corporations Act.
b. Bankruptcy Act.
*c. Partnership Act.
d. Business law Act.
Correct answer: c
Learning objective 8.1 ~ define a partnership and the major attributes of a partnership.
2. The relationship that exists between persons carrying on a business in common with a
view to profit is referred to as a:
a. company.
b. proprietorship.
c. retailer.
*d. partnership.
Correct answer: d
Learning objective 8.1 ~ define a partnership and the major attributes of a partnership.
3. The legislation with the most significant influence on the formation, operation and
dissolution of partnerships is the:
Correct answer: a
Learning objective 8.1 ~ define a partnership and the major attributes of a partnership.
Correct answer: c
Learning objective 8.2 ~ state the advantages and main characteristics of the partnership
structure of business.
Correct answer: a
Learning objective 8.2 Few disclosure requirements for a partnership is an advantage over
the company structure, not a disadvantage.
a. management rights.
b. right to share in profits and losses.
c. obligation to contribute capital.
*d. liability for partnership debts to the amount of their contribution.
Correct answer: d
Learning objective 8.2 ~ state the advantages and main characteristics of the partnership
structure of business.
a. limited life.
b. limited liability.
*c. unlimited liability.
d. mutual agency.
Correct answer: c
Learning objective 8.2 ~ state the advantages and main characteristics of the partnership
structure of business.
a. mutual agency.
b. unlimited liability.
c. limited contributions.
*d. less government regulation.
Correct answer: d
Learning objective 8.2 ~ state the advantages and main characteristics of the partnership
structure of business.
9. Which of the following would not result in the automatic dissolution of a partnership?
Correct answer: a
Learning objective 8.2 ~ state the advantages and main characteristics of the partnership
structure of business.
Correct answer: c
Learning objective 8.2 ~ state the advantages and main characteristics of the partnership
structure of business.
11. Cameron and Andrew each invested $45 000 in a partnership where they agreed to share
profits as Cameron: 30%; Andrew 70% . The partnership business was unsuccessful and
now has zero assets. In addition, they are being sued for $100 000 by a supplier for non-
payment of invoices. What is the amount for which Andrew could be held personally
responsible if the lawsuit is successful? (Ignore any possible legal costs.)
a. Zero
b. $45 000
c. $70 000
*d. $100 000
Correct answer: d
Learning objective 8.2 ~ state the advantages and main characteristics of the partnership
structure of business.
*a. Each partner is liable for the debts of the partnership only in proportion to their
original contribution.
b. It is the most common form of partnership.
c. Each partner is personally liable for the obligations of the partnership.
d. Partners have unlimited liability.
Correct answer: a
Learning objective 8.2 ~ state the advantages and main characteristics of the partnership
structure of business.
a. No person may be expelled from the partnership without the consent of all
existing partners.
b. A partner is entitled to interest on money advanced to the partnership that is in
addition to their original contribution.
*c. Each partner is permitted to withdraw up to 20% of their capital per annum for
personal use.
d. Partners are entitled to share equally in the capital of the partnership.
Correct answer: c
Learning objective 8.3 ~ explain the purpose of a partnership agreement and describe its
typical contents.
Correct answer: d
Learning objective 8.3 ~ explain the purpose of a partnership agreement and describe its
typical contents.
Correct answer: b
Learning objective 8.3 ~ explain the purpose of a partnership agreement and describe its
typical contents.
16. The text refers to two methods of accounting for equity in a partnership, method 1 and
method 2; these are:
Correct answer: c
Learning objective 8.4 ~ describe the special features applicable to accounting for
partnerships.
17. The variable capital balances method (method 1), requires the profit or loss and
partner’s drawings to be closed off to each partner’s:
Correct answer: a
Learning objective 8.4 ~ describe the special features applicable to accounting for
partnerships.
18. Which of the following is not a feature of the variable capital balances method
(method 1) of accounting for partnership equity?
Correct answer: c
Learning objective 8.4 ~ describe the special features applicable to accounting for
partnerships.
19. Accounting for a partnership is similar to accounting for a sole trader, except that:
Correct answer: b
Learning objective 8.4 ~ describe the special features applicable to accounting for
partnerships.
20. Which of the following is not a feature of the fixed capital balances method of
accounting for partnership equity?
a. Each partner has two permanent equity accounts, a capital account and a
retained earnings account.
b. Apart from the initial investment very few adjustments are made to the capital
account.
c. The partners retained earnings accounts include their proportions of the profit
of loss for the period.
*d. Partner’s drawings accounts are closed at the end of the accounting period to
their capital accounts.
Correct answer: d
Learning objective 8.4 ~ describe the special features applicable to accounting for
partnerships.
21. Which of the following are correct ways of recording partnership equity?
Method 1 Method 2
I Partner’s Drawings account is Partner’s capital Partner’s retained
closed off to: account. earnings account.
II Distribution of profit or loss: Partner’s capital Partner’s retained
account. earnings account.
III Partner contributions of assets: Partner’s capital Partner’s retained
account. earnings account.
IV Profit or loss summary account Profit distribution Profit distribution
is closed off to: account. account.
*a. I, II and IV
b. I, II and III
c. II, and IV
d. I and III
Correct answer: a
Learning objective 8.4 ~ describe the special features applicable to accounting for
partnerships.
22. Goodwill represents the future benefits of unidentifiable assets. Which of the
factors listed below contribute to the value of goodwill?
I. Favourable location
II. Efficient manufacturing
III. Good customer relations
IV. Staff skills and experience
a. I, II and IV.
b. II and III.
c. II and IV.
*d. I, II, III and IV
Correct answer: d
Learning objective 8.5 ~ explain the accounting entries for the formation of a partnership.
a. replacement value.
b. carrying amount.
*c. fair value.
d. historical cost.
Correct answer: c
Learning objective 8.5 ~ explain the accounting entries for the formation of a partnership.
a. customer.
b. internally generated.
*c. purchased.
d. current.
Correct answer: c
Learning objective 8.5 ~ explain the accounting entries for the formation of a partnership.
25. A partner contributes plant and equipment when a partnership is established. The
amount recognised by the partnership for this contributed asset is equal to:
Correct answer: b
Learning objective 8.5 ~ explain the accounting entries for the formation of a partnership.
26. Sole proprietors, Johnny and Simon, decide to form a partnership. Johnny contributes
inventory with a fair value of $20 000, machinery with a fair value of $120 000 and it
is agreed that the partnership will take over Johnny’s bank loan of $50 000.
Assuming the partnership agreement states that the balance of partnership capital will
be equal to the fair value of the net assets contributed, what is the amount recorded in
Johnny’s capital account?
a. $70 000
*b. $90 000
c. $120 000
d. $140 000
Correct answer: b
Feedback: $90 000 = $20 000 + $120 000 – $50 000.
Learning objective 8.5 ~ explain the accounting entries for the formation of a partnership.
27. When non-current assets are contributed by a partner they should be recorded in the
partnership books at:
a. historic cost.
b. depreciable value.
c. carrying amount.
*d. fair value.
Correct answer: d
Learning objective 8.5 ~ explain the accounting entries for the formation of a partnership.
28. The fair value of an asset, as defined in the accounting standards, is:
a. the costs incurred to purchase an asset and make it ready for use.
*b. the price that would be received to sell an asset in an orderly transaction
between market participants at the measurement date, after deducting all the
costs of that transfer.
c. the price paid for an asset less any directly attributable costs.
d. the costs that would be incurred if the asset needed to be replaced.
Correct answer: b
Learning objective 8.5 ~ explain the accounting entries for the formation of a partnership.
a. it is immaterial.
b. it is not a partnership asset.
*c. it cannot be measured reliably.
d. it will not provide a future economic benefit.
Correct answer: c
Learning objective 8.5 ~ explain the accounting entries for the formation of a partnership.
30. Tom and Jerry are two sole traders that have joined together to form a partnership by
combining their net assets.
Jerry contributes:
Cost value Fair value
Cash $20 000
Accounts receivable $12 000 $10 500
Tom contributes:
Plant and Equipment $40 000 $38 000
Accumulated depreciation $5 000
Bank overdraft $4 000
What will be the amount shown in the allowance for doubtful debts account in the
balance sheet prepared after the formation of the partnership of Tom and Jerry?
a. Nil
b. $500
c. $1000
*d. $1500
Correct answer: d
Feedback: The difference between the $12 000 gross book value of the accounts receivable and
the $10 500 fair value.
Learning objective 8.5 ~ explain the accounting entries for the formation of a partnership.
31. Tom and Jerry are two sole traders that have joined together to form a partnership by
combining their net assets.
Jerry contributes:
Cost value Fair value
Cash $20 000
Accounts receivable $12 000 $10 500
Tom contributes:
Plant and Equipment $40 000 $38 000
Accumulated depreciation $5 000
Bank overdraft $4 000
What will be the amount shown in the accumulated depreciation account on formation
of the partnership of Tom and Jerry?
*a. $Nil
b. $2000
c. $3000
d. $5000
Correct answer: a
Learning objective 8.5 ~ explain the accounting entries for the formation of a partnership.
32. Tom and Jerry are two sole traders that have joined together to form a partnership by
combining their net assets.
Jerry contributes:
Cost value Fair value
Cash $20 000
Accounts receivable $12 000 $10 500
Tom contributes:
Plant and Equipment $40 000 $38 000
Accumulated depreciation $5 000
Bank overdraft $4 000
a. $(10 500).
b. $28 500.
*c. $30 500.
d. $32 000.
Correct answer: c
Feedback: $20 000 + $10 500.
Learning objective 8.5 ~ explain the accounting entries for the formation of a partnership.
33. Unless otherwise agreed amongst the partners, partners’ salaries, interest on capital and
interest on drawings are assumed in partnership accounting to be settled by means of:
a. a cash payment.
b. by offsetting entries.
*c. an adjusting entry in the accounting records (book entry).
d. by private arrangement by the partners.
Correct answer: c
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
34. In a partnership, the profit and loss sharing ratio will be based:
Correct answer: d
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
35. The objective of allocating profits and losses is to reward each partner fairly for the
resources and services contributed to the partnership. Which of the following factors
would not be directly relevant in negotiating a profit and loss sharing agreement for a
partnership?
Correct answer: b
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
36. After completion of the closing entries, the profit distribution account in a partnership
always has a:
Correct answer: a
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
37. Steve, Chevy and Martin agree to share profits in the ratio 3: 5: 2. This means:
Correct answer: b
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
a. drawings account.
b. balance sheet.
c. profit or loss summary account.
*d. profit distribution account.
Correct answer: d
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
39. Bert and Ernie agree to share profits and losses in the ratios 6:4. If the net loss is
$30,000, how much loss is allocated to each partner?
Correct answer: a
Feedback: Bert $18 000; Ernie $12 000. (Bert = 6/10 x $30 000), (Ernie = 4/10 x $30 000).
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
40. With the fixed capital balances method (method 2) of accounting for partnership
equity, the general journal entry to record interest on capital is:
Correct answer: d
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
41. If the fixed capital balances method (method 2) is used to account for partnership
equity, both the profit or loss and the partner’s drawings are closed to the:
Correct answer: c
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
42. Fiona and Jason have capital balances of $40 000 and $80 000 respectively and use
the variable capital balances method. If their profit/loss sharing ratios are Fiona 25%
and Jason 75%, the balance of Fiona’s capital account after a net loss of $50 000 is:
a. $23 333
*b. $27 500
c. $10 000
d. $52 500
Correct answer: b
Feedback: $27 500 = $40 000 – 25% of $50 000.
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
43. The partnership agreement between Allen and Barry states that profit and loss sharing
arrangements will be based on the ratio of the partner’s capital balances. Allen and Barry
have capital balances of $90 000 and $60 000 respectively at the end of the accounting
period. If profit for the period is $48 000, the profit allocations of each of the partners is:
Correct answer: b
Feedback: Allen $28 800; Barry $19 200. (Allen=$90 000/$150 000 x $48 000). (Barry=$60
000/$150 000 x $48 000.
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
44. With the variable capital balances method (method 1) of accounting for partnership
equity, the general journal entry to record interest on capital is:
Correct answer: a
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
45. Paula and Penny have capital balances of $120 000 and $150 000 respectively and use
the variable capital balances method. If their profit/loss sharing ratios are Paula 40% and
Penny 60%, the balance of Penny’s capital balance after a profit of $60 000 is:
a. $114 000
b. $150 000
c. $174 000
*d. $186 000
Correct answer: d
Feedback: $186 000 = $150 000 + 60% of $60 000.
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
46. Macy and John have capital account balances at the end of the year of $100 000 and $25
000 respectively. Profit of the partnership is $105 000. The profit and loss sharing
agreement calls for (1) a salary of $40 000 to Macy and $35 000 to John, (2) interest of
5% p.a. on capital balances, (3) the residual profit to be split 80:20 in favour of Macy.
Macy’s share of the distribution is:
a. $26 000
*b. $64 000
c. $41 000
d. $45 000
Correct answer: b
Feedback: $64 000 = $40 000 + $5000 + ($23 750* x 80%)
*$23 750 = Profit $105 000 – total salaries $75 000 less total interest $6250**
**$6250 = Total capital $125 000 x 5%
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
47. Bonnie and Cathy have a profit and loss sharing agreement where: (1) salaries of $20
000 each are credited, (2) 10% interest is allowed on capital balances (3) the remaining
profit or loss is split 60-40 in favour of Bonnie. At the end of the year, before the
distribution of profits or losses, capital account balances were $50 000 and $35 000 for
Bonnie and Cathy, respectively. Profit for the year was $66 000 before distributions to
partners. Assuming capital balances are adjusted to reflect profits and losses, what is
Bonnie’s ending capital account balance?
a. $89 600
b. $64 600
*c. $85 500
d. $35 500
Correct answer: c
Feedback: $50 000 + $20 000 + $5000 + [$17 500 residual profit* × 60%]
*Residual profit $17 500 = $66 000 – salaries $40 000 – interest $8500
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
48. Simon and Keith have a profit and loss sharing agreement where: (1) salaries of $30 000
each are credited, (2) 6% interest is allowed on capital balances (3) the remaining profit
or loss is split 75-25, respectively. At the end of the year, before the distribution of
profits or losses, capital account balances were $40 000 for Simon and $20 000 for
Keith. There was a profit of $50 000 before distributions to the partners. What is Keith’s
year-end capital account balance assuming capital balances are adjusted to reflect profits
and losses?
Correct answer: a
Feedback: $20 000 + $30 000 + $1200 – [$13 600 residual loss × 25%]
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
49. Hodges and Burton formed a partnership with capital of $30 000 and $45 000
respectively. The partnership agreement provides for the crediting of annual salaries of
$45 000 to Hodges and $75 000 to Burton. Each partner is entitled to 20% interest on
capital. The remaining profit or loss is divided equally. Assuming capital balances are
adjusted to reflect profits and losses, how much, in total, will be credited to Burton’s
capital account if profit for the year is $198 000?
a. $ 82 500
*b. $115 500
c. $ 52 500
d. $ 85 500
Correct answer: b
Feedback: $75 000 + $9000 + $31 500
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
50. Louise and Thelma are in partnership sharing residual profits and losses 50:50. The
profit for the year is $96 000. Thelma is entitled to a salary of $40 000 per annum (to
be paid by means of a book entry). The amount credited to Thelma’s retained earnings
account after the final distribution of profits is:
a. $88 000
b. $48 000
c. $28 000
*d. $68 000
Correct answer: d
Feedback: $68 000 = $40 000 + 50% of $56 000
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
51. When preparing the closing entries for a partnership at the end of the accounting period
which of the following statements is correct? Assume that capital account balances are
not fixed.
a. The retained earnings account is closed to the profit or loss summary account.
*b. The drawings accounts are closed to the capital accounts.
c. Income and expenses are closed to the capital accounts.
d. The profit or loss summary account is closed to the retained earnings accounts.
Correct answer: b
Learning objective 8.6 ~ explain the accounting entries for the allocation of profits and
losses of a partnership.
52. The partnership agreement of Snowy and Brodie provides that interest at 2% per annum
is to be charged on partners’ drawings. During the year ended 31 December drawings by
both partners were:
Snowy Brodie
1 March $1 500
1 May 2 700 $3 600
1 July 800
1 August 600
1 October 1 200
1 December 4 200
What is the total amount of interest on drawings chargeable to Brodie’s current account
for the year?
*a. $62
b. $73
c. $56
d. $31
Correct answer: a
Feedback: ($3600 × 8/12 × 2%) + ($800 × 6/12 × 2%) + ($1200 × 3/12 × 2%)
Learning objective 8.7 ~ explain the accounting entries for drawings and advances or loans
made by partners.
Correct answer: d
Learning objective 8.7 ~ explain the accounting entries for drawings and advances or loans
made by partners.
Correct answer: c
Learning objective 8.7 ~ explain the accounting entries for drawings and advances or loans
made by partners.
55. A partner makes a cash advance to the partnership which is to be repaid in three
years’ time. The partner does not wish this advance to be included as a capital
contribution. The correct classification for this in the balance sheet is:
a. Current asset
b. Non-current asset
c. Current liability
*d. Non-current liability
Correct answer: d
Learning objective 8.7 ~ explain the accounting entries for drawings and advances or loans
made by partners.
56. Gemma and Audrey are in partnership. Their capital balances at the end of the
accounting period are $200 000 and $150 000 respectively. Gemma decides to make a
permanent cash withdrawal from her capital account of $75 000. Assuming the
variable capital balances method (method 1) is used, the correct accounting entry to
record this transaction is:
a. DR Gemma - Retained earnings account $75 000; CR Cash account $75 000
*b. DR Gemma - Capital account $75 000; CR Cash account $75 000
c. DR Gemma - Capital account $75 000; CR Profit distribution account $75 000
d. DR Gemma - Retained earnings account $75 000; CR Profit distribution
account $75 000
Correct answer: b
Learning objective 8.7 ~ explain the accounting entries for drawings and advances or loans
made by partners.
57. Sometimes the partnership agreement may specify that interest is to be charged on
partner’s drawings. The main reason for such a charge is:
Correct answer: d
Learning objective 8.7 ~ explain the accounting entries for drawings and advances or loans
made by partners.
Correct answer: a
Learning objective 8.7 ~ explain the accounting entries for drawings and advances or loans
made by partners.
Correct answer: d
Learning objective 8.7 ~ explain the accounting entries for drawings and advances or loans
made by partners.
60. When a partner makes an advance or loan to the partnership, which of the following
statements is correct?
a. I and II
*b. I and III
c. II and III
d. I, II and III
Correct answer: b
Learning objective 8.7 ~ explain the accounting entries for drawings and advances or loans
made by partners.
61. Gemma and Audrey are in partnership. Their capital balances at the end of the
accounting period are $200 000 and $150 000 respectively. Gemma decides to make a
permanent cash withdrawal from her capital account of $75 000. Assuming the fixed
capital balances method (method 2) is used, the accounting entry to record this
transaction is:
a. DR Gemma capital account $75 000; CR Profit distribution account $75 000
*b. DR Gemma capital account $75 000; CR Bank account $75 000
c. DR Gemma retained earnings account $75 000; CR Profit distribution account
$75 000
d. DR Gemma retained earnings account $75 000; CR Bank account $75 000
Correct answer: b
Learning objective 8.7 ~ explain the accounting entries for drawings and advances or loans
made by partners.
62. Which of the following statements relating to financial reports for a partnership is
incorrect?
Correct answer: d
Learning objective 8.8 ~ describe the content of the financial statements of a partnership.
63. A partnership that is a reporting entity must produce which of these financial statements?
i. Income statement
ii. Balance sheet
iii. Statement of cash flows
iv. Statement of changes in partners’ equity
a. i, ii, iii
b. i, iii
*c. i, ii, iii, iv
d. None of these statements
Correct answer: c
Learning objective 8.8 ~ describe the content of the financial statements of a partnership.
64. When the final financial statements are prepared the profit or loss allocation for a
partnership is normally shown in the:
Correct answer: a
Learning objective 8.8 ~ describe the content of the financial statements of a partnership.
65. The part of the financial statements of a partnership that differs most from that of a sole
trader is the:
Correct answer: b
Learning objective 8.8 ~ describe the content of the financial statements of a partnership.