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A partner can withdraw from a partnership by:


A) Selling his/her interest to another person for cash.
B) Selling his/her interest to another person in exchange for assets.
C) Receiving cash from the partnership in the amount of his/her interest.
D) Receiving assets from the partnership in the amount of his/her interest.
E) All of these.

F) B) and C)
G) B) and D)

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During the closing process, each partner's withdrawals account is closed to _______________.

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Mutual agency implies that each partner in a partnership is a fully authorized agent of the partnership. Which of the following statements is correct regarding the authority of a partner to bind the partnership in dealings with third parties?


A) The partner's authority must be derived from the partnership agreement.
B) The partner's authority may be effectively limited by a formal resolution of the other partners, even if third parties are not aware of that limitation.
C) Only a partner with a majority interest in a partnership has the authority to represent the partnership to third parties.
D) A partner has authority to deal with third parties on the behalf of the other partners only if he has written permission to do so.
E) A partner may be able to legally bind the partnership to actions even if the other partners are unaware of his actions.

F) B) and E)
G) A) and E)

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When a partner is added to a partnership:


A) The previous partnership ends.
B) The underlying business operations end.
C) The underlying business operations must close and then re-open.
D) The partnership must continue.
E) The partnership equity always increases.

F) A) and E)
G) C) and D)

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A partnership that has at least two classes of partners, general and limited, allows the limited partners to have no personal liability beyond the amounts they invest in the partnership, and the limited partners have no active role except as specified in the partnership agreement is a ________________________ partnership.

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Partnership accounting:


A) Is the same as accounting for a sole proprietorship.
B) Is the same as accounting for a corporation.
C) Is the same as accounting for a sole proprietorship, except that separate capital and withdrawal accounts are kept for each partner.
D) Is the same as accounting for an S corporation.
E) Is the same as accounting for a corporation, except that retained earnings is used to keep track of partners' withdrawals.

F) B) and E)
G) C) and D)

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Accounting procedures for all items are the same for both C corporations and S corporations in all aspects.

A) True
B) False

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When a partner invests in a partnership, his/her capital account is __________ for the invested amount.

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In closing the accounts at the end of a period, the partners' capital accounts are credited for their share of the partnership loss or debited for their share of the partnership net income.

A) True
B) False

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Armstrong withdraws from the FAP Partnership. The remaining partners agree to buy out her share for her capital balance of $35,000. Prepare the journal entry to record the withdrawal from the partnership.

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___________________________ implies that each partner in a partnership can be called on to pay a partnership's debts.

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The partnership agreement for Smith Wesson & Davis, a general partnership, provided that profits be shared between the partners in the ratio of their financial contributions to the partnership. Smith contributed $100,000, Wesson contributed $60,000 and Davis contributed $20,000. In the partnership's first year of operation, it incurred a loss of $210,000. What amount of the partnership's loss, rounded to the nearest dollar, should be absorbed by Smith?


A) $70,000
B) $116,667
C) $23,333
D) $105,000
E) $52,500

F) None of the above
G) All of the above

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In a partnership agreement, if the partners agreed to an interest allowance of 10% annually on each partner's investment, the interest allowance:


A) Is ignored when earnings are not sufficient to pay interest.
B) Can make up for unequal capital contributions.
C) Is an expense of the business.
D) Must be paid because the partnership contract has unlimited life.
E) Legally becomes a liability of the general partner.

F) A) and E)
G) A) and D)

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When a partnership is liquidated:


A) Noncash assets are converted to cash.
B) Any gain or loss on liquidation is allocated to the partners' capital accounts using the income and loss sharing ratio.
C) Liabilities are paid or settled.
D) Any remaining cash is distributed to the partners based on their capital balances.
E) All of these.

F) A) and B)
G) A) and C)

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Partners' withdrawals of assets are:


A) Credited to their withdrawals accounts.
B) Debited to their withdrawals accounts.
C) Credited to their retained earnings.
D) Debited to their retained earnings.
E) Debited to their asset accounts.

F) D) and E)
G) A) and B)

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Admitting a partner by accepting assets is a personal transaction between one or more current partners and the new partner.

A) True
B) False

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When the current value of a partnership is greater than the recorded amounts of equity, the current partners usually require any new partner to pay a bonus for the privilege of joining.

A) True
B) False

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Mutual agency means


A) Creditors can apply their claims to partners' personal assets.
B) Partners are taxed on partnership withdrawals.
C) All partners must agree before the partnership can act.
D) The partnership has a limited life.
E) A partner can commit or bind the partnership in any contract within the scope of the partnership business.

F) C) and D)
G) B) and E)

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When a partner is unable to pay a capital deficiency:


A) The partner must take out a loan to cover the deficient balance.
B) The deficiency is absorbed by the remaining partners before distribution of cash.
C) The partnership ends before distribution of cash.
D) The deficient partner is relieved of the liability.
E) The remaining partners must wait for the deficiency to be paid before cash is distributed.

F) A) and B)
G) A) and C)

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Summers and Winters formed a partnership on January 1. Summers contributed $90,000 cash and equipment with a market value of $60,000. Winters' investment consisted of: cash, $30,000; inventory, $20,000; all at market values. Partnership net income for year 1 and year 2 was $75,000 and $120,000, respectively. 1. Determine each partner's share of the net income for each year, assuming each of the following independent situations: (a) Income is divided based on the partners' failure to sign an agreement. (b) Income is divided based on a 2:1 ratio (Summers: Winters). (c) Income is divided based on the ratio of the partners' original capital investments. (d) Income is divided based on interest allowance of 12% on the original capital investments; salary allowance to Summers of $30,000 and Winters of $25,000; and the remainder to be divided equally. 2. Prepare the journal entry to record the allocation of the Year 1 income under alternative (d) above. Part 1: Calculation of partners' capital contributions: Summers and Winters formed a partnership on January 1. Summers contributed $90,000 cash and equipment with a market value of $60,000. Winters' investment consisted of: cash, $30,000; inventory, $20,000; all at market values. Partnership net income for year 1 and year 2 was $75,000 and $120,000, respectively. 1. Determine each partner's share of the net income for each year, assuming each of the following independent situations: (a) Income is divided based on the partners' failure to sign an agreement. (b) Income is divided based on a 2:1 ratio (Summers: Winters). (c) Income is divided based on the ratio of the partners' original capital investments. (d) Income is divided based on interest allowance of 12% on the original capital investments; salary allowance to Summers of $30,000 and Winters of $25,000; and the remainder to be divided equally. 2. Prepare the journal entry to record the allocation of the Year 1 income under alternative (d) above. Part 1: Calculation of partners' capital contributions:

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