Reference no: EM132544925

Problem 1: Which statement concerning partnerships is true?

a. A partnership agreement must be in writing.
b. If all existing partners must approve a new partner this may make it difficult to sell an interest in a partnership.
c. Partner's capital accounts must always have equal balances.
d. The profit or loss is determined in the profit distribution account and is distributed to the partners in the profit summary account.

Problem 2: If the variable capital balances method (method 1) is used, the profit or loss and partner's drawings are closed to the:

a. retained earnings accounts.
b. capital accounts.
c. profit or loss summary account.
d. income statement.

Problem 3: Which of the following is not a feature of the variable capital balances method (method 1) of accounting for partnership equity?

a. Interest on capital is credited to the partner's retained earnings accounts.
b. Each partner has one permanent capital account.
c. Partner's drawings are closed to their capital accounts.
d. The profit or loss distribution account is closed to the partner's capital accounts.

Problem 4: Which of these is not a feature of the fixed capital balances method (method 2) of accounting for partnership equity?

a. Each partner has two permanent equity accounts, a capital account and a retained earnings account.
b. Apart from the initial investment very few adjustments are made to the capital account.
c. Partner's drawings are closed to their capital accounts.
d. The profit or loss distribution account is closed to the partner's retained earnings accounts.

Problem 5: Sole proprietors X and Y decide to form a partnership. X contributes inventory with a fair value of $30 000, equipment with a fair value of $100 000 and it is agreed that the partnership will take over X's bank loan of $20 000. What is X's capital balance assuming that the partners have agreed that his capital balance will be equal to the fair value of the net assets he contributes?

a. $110 000
b. $130 000
c. $150 000
d. $20 000

Problem 6: Ben and Jerry, two sole traders form a partnership by combining their net assets.

Jerry contributes:

                                          Cost value            Fair value
Cash                            $20 000
Accounts receivable        $14 000                  $12 500

Ben contributes:
Plant                            $30 000                  $25 000
Accumulated depreciation $7 000
Bank overdraft                 $6 000
 
What will be the amount shown in the allowance for doubtful debts account in the balance sheet prepared after the formation of the partnership of Ben and Jerry?

a. Nil
b. $1500
c. $1000
d. $500