Multiple Choice Questions
1. Which of the following is not a reason for the popularity of partnerships as a legal form for businesses?
a. Partnerships may be formed merely by an oral agreement.
b. Partnerships can more easily generate significant amounts of capital.
c. Partnerships avoid the double taxation of income that is found in corporations.
d. In some cases, losses may be used to offset gains for tax purposes.

2. Which of the following best describes the articles of partnership agreement?
a. The purpose of the partnership and partners’ rights and responsibilities are required elements of the articles of partnership.
b. The articles of partnership are a legal covenant and must be expressed in writing to be valid.
c. The articles of partnership are an agreement that limits partners’ liability to partnership assets.
d. The articles of partnership are a legal covenant that may be expressed orally or in writing, and forms the central governance for a partnership’s operations.

3. A partnership has the following capital balances:
Allen, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$60,000
Burns, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Costello, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000
Profits and losses are split as follows: Allen (20 percent), Burns (30 percent), and Costello (50 percent). Costello wants to leave the partnership and is paid $100,000 from the business based on provisions in the articles of partnership. If the partnership uses the bonus method, what is the balance of Burns’s capital account after Costello withdraws?
a. $24,000.
b. $27,000.
c. $33,000.
d. $36,000.

Problems 4 and 5 are independent problems based on the following scenario:
At year-end, the Circle City partnership has the following capital balances:
Manning, Capital........................... $130,000
Gonzalez, Capital ........................... 110,000
Clark, Capital .............................. 80,000
Freeney, Capital............................ 70,000
Profits and losses are split on a 3:3:2:2 basis respectively. Clark decides to leave the partnership and is paid $90,000 from the business based on the original contractual agreement.

4. Using the goodwill method, what is Manning’s capital balance after Clark withdraws?
a. $133,000.
b. $137,500.
c. $140,000.
d. $145,000.

5 If instead the partnership uses the bonus method, what is the balance of Manning’s capital account after Clark withdraws?
a. $100,000.
b. $126,250.
c. $130,000.
d. $133,750.