PARTNERSHIP

ACCOUNTING
2 nd tutorial
True or false :
1. Partnership is a popular form of business today as it is easy to
form and allows individuals to combine their talents.
True
2. From the pros of partnership single taxation and lack of
formality.
True (ease of formation, single taxation & lack of formality)
3. LLP is subject to income tax.
False ( corporate subject to income tax, LLP no Income tax)
4. Capital account increased by share of net income and
withdrawal of cash
False (inc. fair value of net asset invested & share of net income, dec. by
withdrawals of cash and share of net loss)
• A partnership is an association of three or more persons to carry on as
co-owners of a business for profit.
False. A partnership is an association of two or more persons to carry on
as co-owners of a business for profit.
• The legal requirements for forming a partnership can be quite
burdensome.
False. Partnerships are fairly easy to form; they can be formed simply by
a verbal agreement.
• A partnership is not an entity for financial reporting purposes.
False. A partnership is an entity for financial reporting purposes.
• The net income of a partnership is taxed as a separate entity.
False. The net income of a partnership is not taxed as a separate entity.
MCQ:
• Which of the following is not a characteristic of a partnership?
A. Taxable entity.
B. Mutual agency.
C. Co-ownership of property.
D. Limited life.
• A partnership agreement should include each of the following
except:
A. names and capital contributions of partners.
B. rights and duties of partners as well as basis for sharing net income or loss.
C. basis for splitting partnership income taxes.
D. provision for withdrawal of assets.
• The advantages of a partnership do not include:
A. ease of formation.
B. unlimited liability.
C. Lack of formality .
D. Single taxation .
• Formation of a partnership, each partner’s initial investment of
assets should be recorded at their:
A. book values.
B. fair values.
C. cost.
D. appraised values.
• K. Decker, S. Rosen, and E. Toso are forming a partnership. Decker is
transferring $50,000 of personal cash to the partnership. Rosen owns land
worth $15,000 and a small building worth $80,000, which she transfers to
the partnership. Toso transfers to the partnership cash of $9,000,
accounts receivable of $32,000, and equipment worth $39,000. The
partnership expects to collect $29,000 of the accounts receivable.

1. Decker capital will be :

a) 75000
b) 50000
c) 74000
d) 15000
Con.
2. Rosen capital will equal :
A. 50000
B. 74000
C. 75000
D. 95000

3. Toso capital will equal:

A. 75000
B. 74000
C. 80000
D. Nothing correct.

will be 77000 (cash9000+ AR 32000- Allowance 3000+ equi. 39000)

• Suzy Vopat has owned and operated a proprietorship for several years.
On January 1, she decides to terminate this business and become a
partner in the firm of Vopat and Sigma. Vopat’s investment in the
partnership consists of $12,000 in cash, and the following assets of the
proprietorship: accounts receivable $14,000 less allowance for doubtful
accounts of $2,000, and equipment $30,000 less accumulated
depreciation of $4,000. It is agreed that the allowance for doubtful
accounts should be $3,000 for the partnership. The fair value of the
equipment is $23,500.
• Vopat Capital equal:
• 47500
• 54000
• 50000
• 46500