week 7 quiz questions

1. A partnership business is a: private firm in which all owners have equal ownership and limited liabilities in the event of a bankruptcy. corporation in which the owners have limited liability for the corporation's liabilities. firm listed in a stock exchange, in which no owner owns a majority of equity to control the firm. business with two or more owners that is not organized as a corporation. 2. Rick Co. purchases 7,000 shares of its own $2 par value common stock for $160 per share. Which of the following is 3. the correct journal entry to record this transaction? Debit Cash $2,240,000, and credit Paid-In Capital in Excess of Par - Common $2,240,000. Debit Treasury Stock - Common $1,120,000 and credit Cash $1,120,000. Debit Common Stock - $2 Par Value $2,240,000 and credit Cash $2,240,000. Debit Cash $2,240,000 and credit Treasury Stock - Common $2,240,000. On the ________, cash dividends become a liability of a corporation. end of the fiscal year declaration date payment date date of record When a partner sells his interest to another party, the journal entry simply credits the withdrawing partner's capital account and debits the new partner's capital. True False 4. Aries and Eros start a partnership firm with capital contributions of $40,000 and $60,000, respectively. In the course of the year, Aries withdraws $5,000 from the business in order to meet his personal expenses. Which of the following is the correct journal entry to close the relevant Withdrawals account at the end of the year? Aries, Withdrawals $5,000 Eros, Capital $5,000 Aries, Withdrawals $5,000 Cash $5,000 No Entry. Aries, Capital $5,000 Aries, Withdrawals $5,000 5. Bradley Corporation issued 10,000 shares of common stock on January 1, 2015. The stock has a par value of $0.01 per share and was sold for cash at par. Which of the following is the correct journal entry to record this transaction? Cash debited for $100 and Common Stock - $0.01 Par Value credited for $100 Cash credited for $10,000 and Common Stock - $0.01 Par Value debited for $ 10,000 Paid - In Capital in Excess of Par - Common debited for $9,900 and Common Stock - $0.01 Value credited for $9,900 Cash debited for $10,000, Common Stock - $0.01 Par Value credited for $100, and Paid-In Capital in Excess of Par - Common credited for $9,900. 6. The statement of retained earnings reports how the company's retained earnings balance changed from the beginning of the period to the end of the period. TRUE or FALSE In a partnership business, George has an ownership of 60% and Ben has an ownership of 40%. For developing the business, they purchased equipment for $10,000. George contributes a sum of $7,000 and Ben makes a contribution of $3,000 on July 1. Based on the information provided, which of the following is true of the partnership balance sheet? 7. 8. George, Capital will increase by $7,000 and Ben, Capital will increase by $3,000. Both George, Capital and Ben, Capital will increase by $10,000. George, Capital will increase by $10,000 and Ben, Capital will remain unchanged. George, Capital will increase by $6,000 and Ben, Capital will increase by $4,000. Mathew, Patrick, and Robin have capital balances of $75,000, $120,000, and $93,000, respectively. As per the partnership agreement, Mathew gets a profit share of 2/9; Patrick gets 4/9; and Robin gets 3/9. Partnership agrees to pay $66,000 as final settlement to Mathew. How much bonus will Robin receive as a result of this transaction? $5,142 $4,000 $5,000 $3,857 9. Which of the following is a disadvantage of partnership firms? These are taxed at multiple levels: corporate level and individual level. These have more difficulty in raising capital as compared to a sole proprietorship. These have a mutual agency which creates personal obligations for each partner. These cannot be dissolved without permission of SEC. 11. Preferred shareholders: have the first claim on dividend funds. are guaranteed that they will not take a loss on their investment. have higher voting rights than common shareholders. are sold for price lower than that of common stock. 12. Which of the following explains the term \"lack of mutual agency\" of a corporation? Shareholders are not authorized to sign contracts or make business commitments on behalf of the corporation. Corporations pay income tax on corporate earnings, and shareholders pay personal income tax on corporate dividends and gains from sale of stock. 13. The liabilities of the corporation cannot be extended to the personal assets of the shareholders. Shares of stock can be readily bought and sold by investors on the open market. Capital deficiency occurs when a partner's capital account has a credit balance. True or False 14. Shaun and Rick are partners. Shaun has a capital balance of $0,000 and Rick has a capital balance of $8,000. Edwin invests a building with a current market value of $6,000 to acquire an interest in the new partnership. Which of the following is true of the effect of the transaction on the balance sheet? (Assume no bonus to any partner.) Both assets and equity will decrease by $6,000. Both assets and equity will increase by $6,000. Both assets and liabilities will decrease by $6,000. Both assets and liabilities will increase by $6,000. 15. Alex, Brad, and Carl are partners. The profit and rule sharing rule between them is 4:3:3 in the alphabetical order. The partnership incurs a net loss of $100,000. Before preparing the closing journal entry the: Alex, Capital account will have a credit balance of $40,000. Carl, Capital account will have a debit balance of $30,000. Alex, Capital account will have a debit balance of $40,000. Income Summary account will have a debit balance of $100,000