Merits And Demerits Of Business Partnership! Trivia Quiz
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- 1.
Cherryhill and Hace had been partners for several years, and they decided to admit Quincy to the partnership. The accountant for the partnership believed that the dissolved partnership and the newly formed partnership were two separate entities. What method would the accountant have used for recording the admission of Quincy to the partnership?
- A.
The bonus method.
- B.
The equity method.
- C.
The goodwill method.
- D.
The proportionate method.
- E.
The cost method.
Correct Answer
C. The goodwill method.Explanation
The accountant would have used the goodwill method for recording the admission of Quincy to the partnership. This method is typically used when a new partner is admitted and the existing partners want to recognize the value of the partnership's reputation and customer relationships. It involves calculating the value of the partnership's goodwill and allocating it among the partners, including the new partner. This method recognizes the intangible value that Quincy brings to the partnership and ensures that the partnership's financial statements reflect the true value of the business.Rate this question:
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- 2.
When the hybrid method is used to record the withdrawal of a partner, the partnership
- A.
Revalues assets and liabilities and records goodwill to the continuing partner but not to the withdrawing partner.
- B.
Revalues liabilities but not assets, and no goodwill is recorded.
- C.
Can recognize goodwill but does not revalue assets and liabilities.
- D.
Revalues assets but not liabilities, and records goodwill to the continuing partner but not to the withdrawing partner.
- E.
Revalues assets and liabilities but does not record goodwill.
Correct Answer
E. Revalues assets and liabilities but does not record goodwill.Explanation
When the hybrid method is used to record the withdrawal of a partner, the partnership revalues both its assets and liabilities to reflect their fair market values. However, it does not record any goodwill in this process. Goodwill is only recorded when there is a change in the partnership's ownership structure, such as when a new partner is admitted or an existing partner withdraws. In this case, since the question specifically states that the withdrawal of a partner is being recorded, no goodwill is recorded.Rate this question:
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- 3.
The disadvantages of the partnership form of business organization, compared to corporations, include
- A.
The legal requirements for formation.
- B.
Unlimited liability for the partners.
- C.
the requirement for the partnership to pay income taxes.
- D.
The extent of governmental regulation.
- E.
The complexity of operations.
Correct Answer
B. Unlimited liability for the partners.Explanation
The correct answer is unlimited liability for the partners. In a partnership, the partners are personally liable for any debts or obligations of the business. This means that if the business fails or incurs significant debts, the partners' personal assets can be used to satisfy those obligations. This is different from a corporation, where shareholders have limited liability and are not personally responsible for the debts of the company. Unlimited liability can be a significant disadvantage for partners as it puts their personal assets at risk.Rate this question:
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- 4.
The advantagesof the partnership form of business organization, compared to corporations, include
- A.
Single taxation
- B.
Ease of raising capital
- C.
Mutual agency
- D.
Limited liabiility
- E.
Difficulty of formation
Correct Answer
A. Single taxationExplanation
The partnership form of business organization offers the advantage of single taxation. This means that the partnership itself does not pay taxes on its profits. Instead, the profits are passed through to the individual partners, who then report and pay taxes on their share of the profits on their personal tax returns. This is beneficial because it avoids the double taxation that corporations face, where both the corporation and its shareholders are taxed on the profits. Single taxation can result in lower overall tax liability for partners.Rate this question:
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- 5.
Advantages of the partnership form of business organization, compared to corporations, including
- A.
Only when the partnership sells its assets and permanently closes its books.
- B.
Only when a partner leaves the partnership.
- C.
At the end of each year, when income is allocated to the partners.
- D.
Only when a new partner is admitted to the partnership.
- E.
When there is any change in the individuals who make up the partnership.
Correct Answer
E. When there is any change in the individuals who make up the partnership.Explanation
The correct answer is when there is any change in the individuals who make up the partnership. This is because partnerships are generally easier to dissolve and re-form than corporations. When there is a change in the individuals who make up the partnership, it can be relatively simple to add or remove partners and continue the business operations. In contrast, corporations typically require more complex procedures and legal formalities to make changes in ownership.Rate this question:
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- 6.
The partnership of Clapton, Seidel, and Thomas was insolvent and will be unable to pay $30,000 in liabilities currently due. What recourse was available to the partnership's creditors?
- A.
They must present equal claims to the three partners as individuals.
- B.
They must try obtain a payment from the partner with the largest capital account balance.
- C.
They cannot seek remuneration from the partners as individuals.
- D.
They may seek remuneration from any partner they choose.
- E.
They must present their claims to the three partners in the order of the partners' capital account balances.
Correct Answer
D. They may seek remuneration from any partner they choose.Explanation
The correct answer is that the partnership's creditors may seek remuneration from any partner they choose. This means that the creditors have the option to pursue payment from any of the partners individually, rather than having to present equal claims to all three partners or only seeking payment from the partner with the largest capital account balance. This gives the creditors flexibility in pursuing their claims and allows them to choose the most viable option for recovering their debts.Rate this question:
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- 7.
Which of the following is not a characteristic of a partnership?
- A.
The partnership itself pays no income taxes.
- B.
It is easy to form a partnership.
- C.
Any partner can be held personally liable for all debts of the business.
- D.
A partnership requires written Articles of Partnership.
- E.
Each partner has the power to obligate the partnership for liabilities.
Correct Answer
D. A partnership requires written Articles of Partnership.Explanation
A partnership requires written Articles of Partnership. This statement is not a characteristic of a partnership because a partnership can be formed orally or through an implied agreement. While it is recommended to have a written agreement to avoid disputes, it is not a legal requirement for a partnership to have written Articles of Partnership.Rate this question:
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- 8.
Partnerships have alternative legal forms including all of the following except
- A.
Partnership
- B.
Limited Partnership.
- C.
Subchapter S Corporation.
- D.
Limited Liability Partnership.
- E.
Limited Liability Company.
Correct Answer
C. Subchapter S Corporation.Explanation
Partnerships have alternative legal forms including Limited Partnership, Limited Liability Partnership, and Limited Liability Company. Subchapter S Corporation is not a form of partnership, but rather a specific type of corporation that allows for pass-through taxation.Rate this question:
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- 9.
Which of the following type of organization is classified as a partnership, or similar to a partnership, for tax purposes? (I.) Limited Liability Company (II.) Limited Liability Partnership (III.) Subchapter S Corporation
- A.
A) II only.
- B.
B) II and III.
- C.
C) I and II.
- D.
D) I and III.
- E.
E) I, II, and III.
Correct Answer
E. E) I, II, and III.Explanation
Limited Liability Company (LLC), Limited Liability Partnership (LLP), and Subchapter S Corporation are all types of organizations that are classified as partnerships, or similar to partnerships, for tax purposes. Therefore, the correct answer is E) I, II, and III.Rate this question:
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- 10.
Which of the following statements is correct regarding the admission of a new partner?
- A.
A new partner must purchase a partnership interest directly from the business.
- B.
The right of co-ownership in the business property can be transferred to a new partner without the consent of other existing partners.
- C.
The right to participate in management of the business can be conveyed without the consent of other existing partners.
- D.
The right to share in profits and losses can be sold to a new partner without the consent of other existing partners.
- E.
A new partner always pays book value.
Correct Answer
B. The right of co-ownership in the business property can be transferred to a new partner without the consent of other existing partners. -
- 11.
Withdrawals from the partnership accounts are typically not used
- A.
To record compensation for work performed in the business.
- B.
To reduce the partners' capital account balances at the end of an accounting period.
- C.
To record interest earned on a partner’s capital balance.
- D.
To reduce the basic investment that has been made in the business.to record a reward for ownership in the partnership.
Correct Answer
C. To record interest earned on a partner’s capital balance.Explanation
Withdrawals from the partnership accounts are typically not used to record interest earned on a partner's capital balance. Withdrawals are usually used to record the distribution of profits or the return of a partner's investment. Interest earned on a partner's capital balance is usually recorded as income or revenue for the partnership, not as a withdrawal.Rate this question:
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- 12.
What is a marshaling of assets?
- A.
A listing of estimated realizable values of a business's assets
- B.
The order in which the creditors of a partnership will be paid as partnership assets are liquidated
- C.
The order in which partners receive cash as partnership assets are liquidated
- D.
A ranking of claims against an individual
- E.
The order in which the partnership's assets are liquidated
Correct Answer
D. A ranking of claims against an individualExplanation
A marshaling of assets refers to a ranking of claims against an individual. It involves organizing and prioritizing the various claims made by creditors against an individual's assets. This process helps determine the order in which these claims will be satisfied or paid off from the available assets. By establishing a clear ranking, it ensures a fair and orderly distribution of assets among creditors, based on their respective claims.Rate this question:
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- 13.
Which of the following will not result in the dissolution of a partnership? 1) Partners are incompatible and choose to cease operations. 2) Partners realize that the profit figures have failed to reach projected levels. 3) Retirement of a partner. 4) Death of a partner.
- A.
1 and 2 only
- B.
3 and 4 only
- C.
1, 2, and 3
- D.
1, 2, 3, and 4
- E.
Neither 1, 2, 3, or 4
Correct Answer
E. Neither 1, 2, 3, or 4Explanation
The correct answer is "Neither 1, 2, 3, or 4." This means that none of the given options will result in the dissolution of a partnership. Option 1 states that partners are incompatible and choose to cease operations, but even in this case, the partnership may continue if the partners find a way to resolve their differences. Option 2 mentions that profit figures have failed to reach projected levels, but this does not necessarily mean that the partnership will dissolve. Options 3 and 4 discuss retirement and death of a partner, which may lead to changes in the partnership but not necessarily its dissolution.Rate this question:
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- 14.
What accounting transactions are not recorded by an accountant during liquidation?
- A.
The conversion of partnership assets into cash.
- B.
The allocation of the resulting gains and losses.
- C.
The payment of liabilities and expenses.
- D.
Remaining unpaid debts settled, and the distribution of any remaining assets to the partners based on their profit and loss ratio.
Correct Answer
D. Remaining unpaid debts settled, and the distribution of any remaining assets to the partners based on their profit and loss ratio.Explanation
During liquidation, an accountant records all the necessary accounting transactions. However, the remaining unpaid debts settled, and the distribution of any remaining assets to the partners based on their profit and loss ratio are not recorded by the accountant. These transactions are typically handled by the liquidator or the partners themselves, rather than being recorded in the formal accounting records.Rate this question:
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- 15.
Which of the following statements is false concerning the Schedule of Liquidation?
- A.
Liquidations may take a considerable length of time to complete.
- B.
Frequent reporting by the accountant is rarely necessary.
- C.
The Schedule of Liquidation provides a listing of transactions to date, current cash, and capital balances.
- D.
The Schedule of Liquidation provides a listing of property still being held by the partnership and liabilities remaining unpaid.
- E.
The Schedule of Liquidation keeps creditors and partners apprised of the results of the process of dissolution.
Correct Answer
B. Frequent reporting by the accountant is rarely necessary.Explanation
The Schedule of Liquidation is a document that provides information about the transactions, cash and capital balances, property held, and unpaid liabilities during the process of dissolution. It is important to keep creditors and partners informed about the progress of the liquidation. However, frequent reporting by the accountant is not necessary, as the schedule provides a comprehensive overview of the liquidation process.Rate this question:
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- 16.
What is the preferred method of resolving a partner's deficit balance, according to the Uniform Partnership Act?
- A.
Partners never have a deficit balance.
- B.
The other partners must contribute personal assets to cover the deficit balance.
- C.
The partnership must sell assets in order to cover the deficit balance.
- D.
The partner with a deficit balance must contribute personal assets to cover the deficit balance.
- E.
The partner with a deficit balance contributes personal assets only if those personal assets exceed personal liabilities.
Correct Answer
E. The partner with a deficit balance contributes personal assets only if those personal assets exceed personal liabilities.Explanation
According to the Uniform Partnership Act, the preferred method of resolving a partner's deficit balance is for the partner with the deficit balance to contribute personal assets only if those personal assets exceed personal liabilities. This means that the partner is responsible for covering their own deficit balance, but only if they have enough personal assets to do so after subtracting their personal liabilities.Rate this question:
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- 17.
Which of the following statements is true concerning the distribution of safe payments?
- A.
The distribution of safe payments assumes that any capital deficit balances will prove to be a total loss to the partnership.
- B.
Safe payments are equal to the recorded capital balances of partners with positive capital balances.
- C.
The distribution of safe payments may only be made after all liabilities have been paid.
- D.
In computing safe payments, partners with positive capital balances are assumed to absorb an equal share of any deficit balance(s).
- E.
There are no safe payments until the liquidation is complete.
Correct Answer
A. The distribution of safe payments assumes that any capital deficit balances will prove to be a total loss to the partnership.Explanation
The correct answer states that the distribution of safe payments assumes that any capital deficit balances will prove to be a total loss to the partnership. This means that if a partner has a negative capital balance, they will not receive any safe payments and will bear the entire loss themselves. This assumption is based on the idea that partners with positive capital balances should not be responsible for covering the losses of partners with negative capital balances.Rate this question:
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- 18.
Which of the following is the proper ranking order of property distributions stipulated by the Uniform Partnership Act?
- A.
Those owing to partners by way of contribution, those owing to partnership creditors, those owing to separate creditors.
- B.
Those owing to separate creditors, those owing to partnership creditors, those owing to partners by way of contribution.
- C.
Those owing to separate creditors, those owing to partners by way of contribution, those owing to partnership creditors.
- D.
Those owing to partners by way of contribution, those owing to separate creditors, those owing to partnership creditors.
- E.
Those owing to partnership creditors, those owing to partners by way of contribution, those owing to separate creditors.
Correct Answer
B. Those owing to separate creditors, those owing to partnership creditors, those owing to partners by way of contribution.Explanation
The proper ranking order of property distributions stipulated by the Uniform Partnership Act is as follows: first, the property owing to separate creditors should be distributed, then the property owing to partnership creditors, and finally, the property owing to partners by way of contribution. This order ensures that the debts owed to outside creditors are settled before any distributions are made to the partners.Rate this question:
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- 19.
Which statement below is correct?
- A.
If a partner of a liquidating limited liability partnership is unable to pay a capital account deficit, the deficit is absorbed by the other partners in the income-sharing ratio of those partners.
- B.
Gains and losses from the sale of noncash assets are divided in the ratio of the partners' capital account balances if there is no income-sharing plan in the partnership contract.
- C.
A loan receivable from a partner is added to the partner's capital account balance in the preparation of a cash distribution plan.
- D.
Partners may receive cash before creditors receive cash when liquidating a limited liability partnership.
- E.
All cash payments to partners are made using their income-sharing ratio when liquidating the partnership.
Correct Answer
A. If a partner of a liquidating limited liability partnership is unable to pay a capital account deficit, the deficit is absorbed by the other partners in the income-sharing ratio of those partners.Explanation
If a partner of a liquidating limited liability partnership is unable to pay a capital account deficit, the deficit is absorbed by the other partners in the income-sharing ratio of those partners. This means that if a partner is unable to pay their share of the deficit, the other partners will have to cover that amount based on their income-sharing ratio. This ensures that the partnership's obligations are met and that the deficit does not fall solely on the partner who is unable to pay.Rate this question:
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- 20.
The marshaling of assets doctrine regulates claims against an individual's assets. The following lists groups interested in potential cash distributions. (1.) those owed to the creditors of the partnership (2.) those owed to separate creditors (3.) those owed to partners by way of contribution When a partner is bankrupt, which order do claims against their property rank?
- A.
1, 2, 3.
- B.
2, 1, 3.
- C.
3, 2, 1.
- D.
1, 3, 2.
- E.
3, 1, 2.
Correct Answer
B. 2, 1, 3.Explanation
When a partner is bankrupt, claims against their property rank in the following order: (1) those owed to separate creditors, (2) those owed to the creditors of the partnership, and (3) those owed to partners by way of contribution. This means that separate creditors have the first priority in claiming the partner's assets, followed by the partnership creditors, and finally the partners themselves in terms of their contributions.Rate this question:
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- 21.
Which statement below is false?
- A.
The purpose of a marshaling of assets is to protect the interests of various creditors.
- B.
The marshaling of assets gives order and structure to the settling of claims.
- C.
When a partner is insolvent, the partner's personal assets should first be used to settle the claims of his or her personal creditors.
- D.
After a partner’s personal creditors are satisfied, any remaining personal assets may be used to pay creditors of the partnership.
- E.
Partnership assets may be used to pay a partner’s personal creditor prior to payment to partnership creditors.
Correct Answer
E. Partnership assets may be used to pay a partner’s personal creditor prior to payment to partnership creditors.Explanation
The correct answer is "Partnership assets may be used to pay a partner's personal creditor prior to payment to partnership creditors." This statement is false because partnership assets should be used to pay partnership creditors before paying a partner's personal creditors. The purpose of a marshaling of assets is to protect the interests of various creditors and give order and structure to the settling of claims, ensuring that partnership creditors are prioritized over personal creditors. When a partner is insolvent, their personal assets should first be used to settle the claims of their personal creditors. After that, any remaining personal assets can be used to pay partnership creditors.Rate this question:
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- 22.
Which item is not shown on the schedule of partnership liquidation?
- A.
Current cash balances.
- B.
Property owned by the partnership.
- C.
Liabilities still to be paid.
- D.
Personal assets of the partners.
- E.
Current capital balances of the partners.
Correct Answer
D. Personal assets of the partners.Explanation
The personal assets of the partners are not shown on the schedule of partnership liquidation because they are not considered as part of the partnership's assets. The schedule of partnership liquidation typically includes the current cash balances, property owned by the partnership, liabilities still to be paid, and the current capital balances of the partners. Personal assets of the partners are separate from the partnership and are not used to settle the partnership's debts or distribute the remaining assets.Rate this question:
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- 23.
Under the marshaling of assets doctrine, personal creditors can claim a partner’s share of partnership assets under which condition?
- A.
When payment of all partnership debts is assured.
- B.
When the insolvent partner has a positive capital balance.
- C.
When payment of all partnership debts is assured and the insolvent partner has a positive capital balance.
- D.
When the other partner’s agree to the claim..
- E.
Personal creditors can not claim a partner’s share of partnership assets.
Correct Answer
C. When payment of all partnership debts is assured and the insolvent partner has a positive capital balance.Explanation
Under the marshaling of assets doctrine, personal creditors can claim a partner's share of partnership assets when payment of all partnership debts is assured and the insolvent partner has a positive capital balance. This means that if all the debts of the partnership are guaranteed to be paid off and the insolvent partner still has a positive capital balance, the personal creditors can make a claim on their share of the partnership assets. This ensures that the creditors are able to recover the amount owed to them by the insolvent partner.Rate this question:
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Mar 22, 2023Quiz Edited by
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May 11, 2011Quiz Created by
Deltzx301
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