EXERCISE 15-1 Multiple Choice L01 LO2 LQ6 Select the best answer for each of the following 1. Which of the following is not a characteristic of a partnership? (a) Limited life (b) Mutual agency (c) Limited liability (d) Right to dispose of partnership interest 2. The articles of partnership need not include which of the following? (a) Location of the place of business. (b) Allocation of profit/loss (c) Procedures for admitting a new partner (d) Fiscal period of the partnership (e) All of the above should be included 3. The High and Low partnership agreement provides special compensation to High for managing the business. High receives a bonus of 15% of partnership net income before salary and bonus, and also receives a salary of $45,000. Any remaining profit or loss is to be allocated equally. During 2008, the partnership had net income of $50,000 before the bonus and salary allowance. As a result of these distributions, Low's equity in the partner- ship would (a) Increase. (b) Not change (c) Decrease the same as High's. (d) Decrease. The allocation of an error correction should be based on the profit and loss agreement in effect when (a) The error was made. (b) The error was corrected. (c) The error was discovered (d) The allocation should always be made equally. If there is a provision for ailocation of profits but not losses in the partnership agreement, courts have generally concluded that (a) Losses should not be allocated to the capital accounts, but matched against future 5. earnings (b) Losses should be allocated using the same approach as allocation of profits. (c) Losses should be allocated equally. (d) Losses should be allocated according to the ratio of balances in the capital accounts. 6. Partners E and F share profits and losses equaily after each has been credited in all cir- cumstances with annual salary allowances of $15,000 and $12,000, respectively. Under this agreement, E will benefit by $3,000 more than F in which of the following circumstances? (a) Only if the partnership has earnings of $27,000 or more for the year (b) Only if the partnership does not incur a loss for the year (c) In all earnings or loss situations. (d) Only if the partnership has the year earnings of at least $8,000 for