Question 1

When evaluating the liquidity of a partnership, creditors will likely base their decision on:

Accepted Answer

A)  the business ability to generate a profit. 
B)  previous debts of the business. 
C)  the total assets owned by the business. 
D)  the financial strength of the owners. 
A)  the business ability to generate a profit. 
B)  previous debts of the business. 
C)  the total assets owned by the business. 
D)  the financial strength of the owners. D

Question 2

Closely held corporations have the same ability to qualify for credit sources as publicly traded corporations.

Accepted Answer

A) True 
 B)False  False

Question 3

The assets of a partnership belong jointly to all the partners while the assets of a sole proprietorship belong to the proprietorship.

Accepted Answer

A) True 
 B)False  False

Question 4

Grey, Dailey, and Sanders have formed a partnership. Net income for the first year amounted to $50,400. The partnership agreement states that Grey will receive a salary of $10,000, Dailey will receive $15,000, and Sanders will receive $20,000. They each have capital accounts of $30,000, $40,000, and $50,000 respectively. The contract calls for interest of 12% of their beginning capital balances for each partner. Any profit or loss will be split equally. How much income will each partner receive?

Accepted Answer

Grey will receive income of $1

Question 5

Retained Earnings represent:

Accepted Answer

A)  The profits of the company. 
B)  The investments of the owners. 
C)  The profits of the company plus the investments of the owners. 
D)  The total earnings of the company, less the dividends distributed to the owners and less any losses. 
A)  The profits of the company. 
B)  The investments of the owners. 
C)  The profits of the company plus the investments of the owners. 
D)  The total earnings of the company, less the dividends distributed to the owners and less any losses.

Question 6

Double Taxation means:

Accepted Answer

A)  A corporation must pay double the amount of tax that an unincorporated business pays. 
B)  A corporation pays taxes to the federal government and to the state government. 
C)  The corporation pays tax on its income and the stockholders pay tax on their dividends. 
D)  The corporation pays tax on its income and the officers of the corporation pay tax on their salaries. 
A)  A corporation must pay double the amount of tax that an unincorporated business pays. 
B)  A corporation pays taxes to the federal government and to the state government. 
C)  The corporation pays tax on its income and the stockholders pay tax on their dividends. 
D)  The corporation pays tax on its income and the officers of the corporation pay tax on their salaries.

Question 7

C, D, and E are partners. C has $25,000 in her capital account. D has $35,000 in hers, and E has $45,000. Each gets a salary allowance of $15,000. C gets 10% interest on the beginning balance in the capital account, D gets 12%, and E gets 14%. The remainder is divided 20% to C, 35% to E, and 45% to
E. What is the balance in the capital account at the end of the year if net income was $80,000?

Accepted Answer

C's capital balance

Question 8

A and B are partners. A has $50,000 in his capital account and B has $75,000 at the beginning of the year. A receives a salary of $15,000 and B receives $12,000. Each partner receives 5% of the beginning balance of their capital accounts. The remainder is split 45% to A and 55% to
B. Net income for the year was $125,000. What is the amount of each capital account at year-end?

Accepted Answer

A's capital balance

Question 9

Which of the following is a characteristic of a corporation?

Accepted Answer

A)  Declaration of a dividend by the stockholders. 
B)  Appointment of officers by the stockholders. 
C)  Transferability of shares of stock. 
D)  Unlimited liability. 
A)  Declaration of a dividend by the stockholders. 
B)  Appointment of officers by the stockholders. 
C)  Transferability of shares of stock. 
D)  Unlimited liability.

Question 10

Every stockholder in a corporation will have a drawing account that will be closed to retained earnings during the closing process.

Accepted Answer

A) True 
 B)False

Question 11

Net income in a partnership may not be distributed to the partners:

Accepted Answer

A)  As a salary allowance. 
B)  As interest on beginning capital. 
C)  In a fixed ratio. 
D)  In the form of dividends. 
A)  As a salary allowance. 
B)  As interest on beginning capital. 
C)  In a fixed ratio. 
D)  In the form of dividends.

Question 12

The journal entry when a dividend is declared for $150,000 would be:

Accepted Answer

A)  A Above. 
B)  B Above. 
C)  C Above. 
D)  D Above. 
A)  A Above. 
B)  B Above. 
C)  C Above. 
D)  D Above.

Question 13

Partner A earns $68,000 from a partnership. Partner B earns $57,000 but withdraws only $49,000. How much must Partner B report in his income tax return as income?

Accepted Answer

A)  $49,000. 
B)  $57,000. 
C)  $125,000. 
D)  $117,000. 
A)  $49,000. 
B)  $57,000. 
C)  $125,000. 
D)  $117,000.

Question 14

When a sole proprietorship incorporates, the assets of the new business are recorded at cost.

Accepted Answer

A) True 
 B)False

Question 15

Listed below are several accounting terms introduced in this section.
Each of the following statements may (or may not) describe one of these accounting terms. In the space provided, indicate the term described, or enter "none" if the statement does not correctly describe any of the terms.
_________ (A.) An unincorporated business owned by one person.
_________ (B.) An example of an organized securities market.
_________ (C.) The right of each partner to negotiate binding contracts.
_________ (D.) The total earnings of a corporation less dividends paid out.
_________ (E.) Investments by the owners of a corporation.
_________ (F.) A partnership where one or more partners are not personally liable for the debts of the partnership.
_________ (G.) An organization that serves the professional needs of a CPA.
_________ (H.) A business that is responsible for its own debts and which pays income taxes on its earnings.
_________ (I.) An unincorporated business owned by two or more people.
_________ (J.) A corporation whose shares are not publicly traded.
 $$\begin{array} { | l | l | } 
\hline \text { Sole proprietorship } & \text { Corporation } \
\hline \text { Firm } & \text { The New York Stock Exchange } \
\hline \text { Mutual agency } & \text { The SEC } \
\hline \text { Limited partnership } & \text { Closely-held corporation } \
\hline \text { Paid-in-capital } & \text { Publicly traded corporation } \
\hline & \
\hline
\end{array}$$

Accepted Answer

(A.) Sole Proprietorship; (B.) The New Y

Question 16

The salaries paid to partners are shown as an expense on the income statement while the salary taken by a sole proprietor is debited to a drawing account.

Accepted Answer

A) True 
 B)False

Question 17

Mutual agency refers to the ability of each partner to withdraw cash and other assets at will.

Accepted Answer

A) True 
 B)False

Question 18

Income taxes to a partnership:

Accepted Answer

A)  Are an obligation of the partnership. 
B)  Are an obligation to each partner only when cash is received. 
C)  Are an obligation to each partner based on their share of profits. 
D)  Are not an obligation to each partner since a partnership does not pay tax. 
A)  Are an obligation of the partnership. 
B)  Are an obligation to each partner only when cash is received. 
C)  Are an obligation to each partner based on their share of profits. 
D)  Are not an obligation to each partner since a partnership does not pay tax.

Question 19

Stewart and Brooke form a partnership. Stewart invests $80,000 and Brooke invests $120,000. If there are any profits or losses they will share them as follows:
They will each receive a salary of $25,000.
Any remaining amount will be allocated ¾ to Brooke and ¼ to Stewart.
(1) If the partnership income for the year is $115,000 what amount will be allocated to Brooke?
(2) If the partnership income for the year is $125,000 what amount will be allocated to Stewart?
(3) If the partnership income for the year is $45,000 what amount will be allocated to Stewart and what amount to Brooke?

Accepted Answer

(1) Brooke will receive $73,75

Question 20

Personal liability of the owners for any business debts is an important consideration when selecting an appropriate form of business organization.

Accepted Answer

A) True 
 B)False

Exam 28: Forms of Business Organization

When evaluating the liquidity of a partnership, creditors will likely base their decision on:

Closely held corporations have the same ability to qualify for credit sources as publicly traded corporations.

The assets of a partnership belong jointly to all the partners while the assets of a sole proprietorship belong to the proprietorship.

Retained Earnings represent:

Double Taxation means:

Which of the following is a characteristic of a corporation?

Every stockholder in a corporation will have a drawing account that will be closed to retained earnings during the closing process.

Net income in a partnership may not be distributed to the partners:

The journal entry when a dividend is declared for $150,000 would be:

Partner A earns $68,000 from a partnership. Partner B earns $57,000 but withdraws only $49,000. How much must Partner B report in his income tax return as income?

When a sole proprietorship incorporates, the assets of the new business are recorded at cost.

The salaries paid to partners are shown as an expense on the income statement while the salary taken by a sole proprietor is debited to a drawing account.

Mutual agency refers to the ability of each partner to withdraw cash and other assets at will.

Income taxes to a partnership:

Personal liability of the owners for any business debts is an important consideration when selecting an appropriate form of business organization.

Accounting: Information for Decision Making

Basic Financial Statements

The Accounting Cycle: Capturing Economic Events

The Accounting Cycle: Accruals and Deferrals

The Accounting Cycle: Reporting Financial Results

Merchandising Activities

Financial Assets

Inventories and the Cost of Goods Sold

Plant and Intangible Assets

Liabilities

Stockholders Equity: Paid-In Capital

Income and Changes in Retained Earnings

Statement of Cash Flows

Financial Statement Analysis

Global Business and Accounting

Management Accounting: a Business Partner

Job Order Cost Systems and Overhead Allocations

Process Costing

Costing and the Value Chain

Cost-Volume-Profit Analysis

Incremental Analysis

Responsibility Accounting and Transfer Pricing

Operational Budgeting

Standard Cost Systems

Rewarding Business Performance

Capital Budgeting

The Time Value of Money: Future Amounts and Present Values Answer Key

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