Chapter 12 Partnerships

TRUE / FALSE

1. A partnership is an association of at least three persons who co-own a business for profit. True or False
2. Each partner is individually liable for the debts of a partnership. True or False
3. A partners liability is limited to his or her investment in the firm. True or False
4. In a partnership, each partner has his or her separate capital account. True or False
5. If Sam Jones invests $2,000 cash and merchandise inventory valued at $5,000 in a partnership, his capital account will have an opening balance of $5,000. True or False

Answer following:

6. Which of the following is not an advantage of a partnership?

1. Combined experience and talent

2. Unlimited life

3. Combined resources

4. Ease of formation

7. Tom Gardner and Jerry Grady decide to form a partnership. Tom invests cash of $5,000, while Jerry invests merchandise inventory valued at $7,000 and cash of $2,000. The balance in Jerrys capital account after formation of the partnership is

1. $5,000.

2. $9,000.

3. $14,000.

4. $7,000.

8. Net income is to be divided as follows: salary allowances of $30,000 to Partner A and $35,000 to Partner B, with any remaining net income or loss divided equally between the partners. If net income for the current year amounts to $70,000, Partner As distributive share will be

1. $32,500.

2. $37,500.

3. $30,000.

4. $35,000.

9. Assume that the articles of partnership specify that net income is to be divided as follows: salary allowances of $50,000 to Partner A and $30,000 to Partner B, with any remaining net income or loss divided equally between the partners. If net income for the current year amounts to $85,000, Partner As distributive share will be

1. $32,500.

2. $52,500.

3. $2,500.

4. $85,000.

10. Assume that the articles of partnership specify that net income is to be divided in the ratio of capital investments. Partner As capital account has a balance of $80,000, and Partner Bs capital account has a balance of $70,000. If the net income for the current year is $40,000, Partner As distributive share will be

1. $18,667
2. $21,333

3. $80,000