Test Bank – Partnerships & Reporting | 11e

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Testbank

to accompany

Accounting

11^th edition

by

Hoggett et al.

© John Wiley & Sons Australia, Ltd 2020

Chapter 8: Partnerships: formation, operation and reporting

Multiple-choice questions

1. The legislation with the most significant influence on the formation, operation and dissolution of partnerships is the:

a. Common Partnership Program.

b. Federal Partnership Act.

c. Partnership Formation, Operation and Liquidation Rules.

d. Partnership Act.

General Feedback:

Learning objective 8.1 define a partnership and the major attributes of a partnership.

2. The relationship that exists between persons carrying on a business in common with a view to profit is referred to as a:

a. proprietorship.

b. partnership.

c. company.

d. retailer.

General Feedback:

Learning objective 8.1 define a partnership and the major attributes of a partnership.

3. The legislation in Australia that is concerned with the formation, operation and dissolution of partnerships is the:

a. Partnership Act..

b. Bankruptcy Act.

c. Business law Act.

d. Corporations Act

General Feedback:

Learning objective 8.1 define a partnership and the major attributes of a partnership.

4. Which of the following statements relating to a 'general partnership' is incorrect?

a. Each partner is personally liable for the obligations of the partnership.

b. Partners have unlimited liability.

c. It is the most common form of partnership.

d. Each partner is liable for the debts of the partnership only in proportion to their original contribution.

General Feedback:

Learning objective 8.2: state the advantages and main characteristics of the partnership structure of business.

5. Which of the following is an advantage of a partnership over a sole proprietorship?

a. Pooling of resources and skills.

b. Liability is unlimited.

c. Mutual agency.

d. Transfer of ownership is easier

General Feedback:

Learning objective 8.2: state the advantages and main characteristics of the partnership structure of business.

6. A limited partner is one who has limited his/her:

a. liability for partnership debts to the amount of their contribution.

b. management rights.

c. right to share in profits and losses.

d. obligation to contribute capital.

General Feedback:

Learning objective 8.2: state the advantages and main characteristics of the partnership structure of business.

7. Which of the following is a not a disadvantage of operating as a partnership rather than as a company?

a. Personal liability for all obligations of the partnership.

b. Fewer disclosure requirements

c. Partners can act on behalf of the other partners and bind them to a contract by acting within the apparent scope of the business.

d. Greater difficulty in selling a share of the business.

General Feedback:

Learning objective 8.2: state the advantages and main characteristics of the partnership structure of business.

8. As compared to a company with a similar number of shareholder's as there are partners in the partnership, an advantage of a partnership is:

a. limited contributions.

b. less government regulation.

c. unlimited liability.

d. mutual agency.

General Feedback:

Learning objective 8.2: state the advantages and main characteristics of the partnership structure of business.

9. Cameron and Andrew each invested $45 000 in a partnership where they agreed to share profits as Cameron: 30%; Andrew 70% . The partnership business was unsuccessful and now has zero assets. In addition, they are being sued for $100 000 by a supplier for non-payment of invoices. What is the amount for which Andrew could be held personally responsible if the lawsuit is successful? (Ignore any possible legal costs.)

a. $45 000

b. $100 000

c. $70 000

d. Zero

General Feedback:

Learning objective 8.2: state the advantages and main characteristics of the partnership structure of business.

10. Which of the following would not result in the automatic dissolution of a partnership?

a. The admission of a new partner

b. The bankruptcy of a partner

c. The death of a partner

d. A partner's illness

General Feedback:

Learning objective 8.2: state the advantages and main characteristics of the partnership structure of business.

11. Which of the following is not an advantage of a partnership?

a. Easier and cheaper to establish.

b. The difficulty of transferring partnership interests

c. Combination of various skills of the individual partners.

d. Flexibility in the running of the business.

General Feedback:

Learning objective 8.2: state the advantages and main characteristics of the partnership structure of business.

12. is the characteristic of a partnership whereby each partner is liable for partnership debts to the full extent of his or her private assets.

a. unlimited liability.

b. limited life.

c. mutual agency.

d. limited liability.

General Feedback:

Learning objective 8.2: state the advantages and main characteristics of the partnership structure of business.

13. Which of the following statements concerning partnership agreements is true?

a. Partner's must always contribute equal amounts of capital.

b. The partnership agreement must be in writing.

c. It is not necessary to specify the duration of the partnership.

d. The contractual authority of each partner should be specified.

General Feedback:

Learning objective 8.3: explain the purpose of a partnership agreement and describe its typical contents.

14. Which of the following would normally be referred to in a partnership agreement?

a. All of these options.

b. Procedures to follow in the event of a dispute.

c. Profit and loss sharing ratios

d. Arrangements to terminate the partnership.

General Feedback:

Learning objective 8.3: explain the purpose of a partnership agreement and describe its typical contents.

15. Which of these is not a provision of the Partnership Act?

a. Each partner is permitted to withdraw up to 20% of their capital per annum for personal use.

b. Partners are entitled to share equally in the capital of the partnership.

c. A partner is entitled to interest on money advanced to the partnership that is in addition to their original contribution.

d. No person may be expelled from the partnership without the consent of all existing partners.

General Feedback:

Learning objective 8.3: explain the purpose of a partnership agreement and describe its typical contents.

16. Which of the following are correct ways of recording partnership equity?

 

a. I and III

b. I, II and IV

c. I, II and III

d. II, and IV

General Feedback:

Learning objective 8.4: describe the special features applicable to accounting for partnerships.

17. The text refers to two methods of accounting for equity in a partnership, method 1 and method 2; these are:

a. cash and credit capital methods.

b. equal and proportionate profit sharing methods.

c. interest and no interest methods.

d. variable and fixed capital account methods.

General Feedback:

Learning objective 8.4: describe the special features applicable to accounting for partnerships.

18. The variable capital balances method (method 1), requires the profit or loss and partner's drawings to be closed off to each partner's:

a. retained earnings accounts.

b. capital account.

c. profit or loss summary account.

d. cash account.

General Feedback:

Learning objective 8.4: describe the special features applicable to accounting for partnerships.

19. 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 partners retained earnings accounts.

b. Partner's drawings are closed to their capital accounts.

c. The profit or loss distribution account is closed to the partner's capital accounts.

d. Each partner has one permanent capital account.

General Feedback:

Learning objective 8.4: describe the special features applicable to accounting for partnerships.

20. Accounting for a partnership is similar to accounting for a sole trader, except that:

a. each partner has limited liability.

b. tax must be calculated by the partnership on each partner's share of profit.

c. most partnerships are not reporting entities.

d. each partner's share of equity must be recorded separately.

General Feedback:

Learning objective 8.4: describe the special features applicable to accounting for partnerships.

21. Which of the following is not a feature of the fixed capital balances method of accounting for partnership equity?

a. Partner's drawings accounts are closed at the end of the accounting period to their capital accounts.

b. Each partner has two permanent equity accounts, a capital account and a retained earnings account.

c. Apart from the initial investment very few adjustments are made to the capital account.

d. The partners retained earnings accounts include their proportions of the profit of loss for the period.

General Feedback:

Learning objective 8.4: describe the special features applicable to accounting for partnerships.

22. Tom and Jerry are two sole traders that have joined together to form a partnership by combining their net assets.
Jerry contributes:

 


The amount credited to Jerry's capital account is:

a. $32 000.

b. $(10 500).

c. $28 500.

d. $30 500.

General Feedback:

Learning objective 8.5: explain the accounting entries for the formation of a partnership.
Feedback: $20 000 + $10 500.

23. Only goodwill should be recorded in the statement of financial position.

a. purchased.

b. internally generated.

c. current.

d. customer.

General Feedback:

Learning objective 8.5: explain the accounting entries for the formation of a partnership.

24. A partner contributes plant and equipment when a partnership is established. The amount recognised by the partnership for this contributed asset is equal to:

a. the amount paid by the contributing partner when originally acquiring the asset.

b. the carrying amount of the asset at the date of contribution.

c. the same proportion of contributions by other partners.

d. the fair value of the asset at the date of contribution.

General Feedback:

Learning objective 8.5: explain the accounting entries for the formation of a partnership.

25. Tom and Jerry are two sole traders that have joined together to form a partnership by combining their net assets.
Jerry contributes:

What will be the amount shown in the allowance for doubtful debts account in the statement of financial position prepared after the formation of the partnership of Tom and Jerry?

a. $500

b. $1500

c. $1000

d. Nil

General Feedback:

Learning objective 8.5: explain the accounting entries for the formation of a partnership.
Feedback: The difference between the $12 000 gross book value of the accounts receivable and the $10 500 fair value

26. The fair value of an asset, as defined in the accounting standards, is:

a. the costs that would be incurred if the asset needed to be replaced.

b. the costs incurred to purchase an asset and make it ready for use

c. the price paid for an asset less any directly attributable costs.

d. the price that would be received to sell an asset in an orderly transaction between market participants at the measurement date, after deducting all the costs of that transfer.

General Feedback:

Learning objective 8.5: explain the accounting entries for the formation of a partnership.

27. Accountants do not recognise internally generated goodwill because:

a. it will not provide a future economic benefit.

b. it cannot be measured reliably..

c. it is immaterial.

d. it is not a partnership asset

General Feedback:

Learning objective 8.5: explain the accounting entries for the formation of a partnership.

28. Tom and Jerry are two sole traders that have joined together to form a partnership by combining their net assets.
Jerry contributes:

What will be the amount shown in the accumulated depreciation account on formation of the partnership of Tom and Jerry?

a. $5000

b. $2000

c. $3000

d. $Nil

General Feedback:

Learning objective 8.5: explain the accounting entries for the formation of a partnership.

29. Goodwill represents the future benefits of unidentifiable assets. Which of the factors listed below contribute to the value of goodwill?
I. Favourable location
II. Efficient manufacturing
III. Good customer relations
IV. Staff skills and experience

a. I, II, III and IV

b. II and IV.

c. I, II and IV.

d. II and III.

General Feedback:

Learning objective 8.5: explain the accounting entries for the formation of a partnership.

30. Assets contributed to a partnership should be initially recorded at:

a. fair value.

b. replacement value.

c. historical cost.

d. carrying amount.

General Feedback:

Learning objective 8.5: explain the accounting entries for the formation of a partnership.

31. Sole proprietors, Johnny and Simon, decide to form a partnership. Johnny contributes inventory with a fair value of $20 000, machinery with a fair value of $120 000 and it is agreed that the partnership will take over Johnny's bank loan of $50 000. Assuming the partnership agreement states that the balance of partnership capital will be equal to the fair value of the net assets contributed, what is the amount recorded in Johnny's capital account?

a. $90 000

b. $140 000

c. $120 000

d. $70 000

General Feedback:

Learning objective 8.5: explain the accounting entries for the formation of a partnership.
Feedback: $90 000 = $20 000 + $120 000 - $50 000.

32. When non-current assets are contributed by a partner, they should be recorded in the partnership books at:

a. fair value.

b. carrying amount.

c. historic cost

d. depreciable value.

General Feedback:

Learning objective 8.5: explain the accounting entries for the formation of a partnership.

33. When preparing the closing entries for a partnership at the end of the accounting period which of the following statements is correct? Assume that capital account balances are not fixed.

a. The profit or loss summary account is closed to the retained earnings accounts.

b. The retained earnings account is closed to the profit or loss summary account.

c. Income and expenses are closed to the capital accounts.

d. The drawings accounts are closed to the capital accounts.

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.

34. Unless otherwise agreed amongst the partners, partners' salaries, interest on capital and interest on drawings are assumed in partnership accounting to be settled by means of:

a. an adjusting entry in the accounting records (book entry).

b. by offsetting entries.

c. by private arrangement by the partners.

d. a cash payment.

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.

35. Steve, Chevy and Martin agree to share profits in the ratio 3: 5: 2. This means:

a. Steve is entitled to 1/3 of the profits

b. Martin is entitled to 2/8 of the profits.

c. Steve is entitled to 3/5 of the profits.

d. Chevy is entitled to 1/2 of the profits..

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.

36. In a partnership, the profit and loss sharing ratio will be based:

a. on a formula that the partners agree upon.

b. on the relative effort contributed by the partners.

c. proportionately as per the capital contributions of the partners.

d. the relative business risks assumed by the partners

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.

37. After completion of the closing entries, the profit distribution account in a partnership always has a:

a. credit balance.

b. debit balance.

c. nil balance.

d. negative balance.

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.

38. The objective of allocating profits and losses is to reward each partner fairly for the resources and services contributed to the partnership. Which of the following factors would not be directly relevant in negotiating a profit and loss sharing agreement for a partnership?

a. Capital contributed by each partner to the partnership.

b. The risks assumed by each partner.

c. Work done by each partner in the partnership.

d. The size of each partner's non-partnership assets.

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.

39. A partner's allocation of the partnership's profit or loss is recorded in the:

a. profit distribution account.

b. profit or loss summary account.

c. drawings account.

d. statement of financial position.

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.

40. Bert and Ernie agree to share profits and losses in the ratios 6:4. If the net loss is $30,000, how much loss is allocated to each partner?

a. Bert $20 000; Ernie $10 000

b. Bert $12 000; Ernie $18 000

c. Bert $26 000; Ernie $4 000

d. Bert $18 000; Ernie $12 000

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.
Feedback: Bert $18 000; Ernie $12 000. (Bert = 6/10 x $30 000), (Ernie = 4/10 x $30 000).

41. With the fixed capital balances method (method 2) of accounting for partnership equity, the general journal entry to record interest on capital is:

a. DR Profit distribution account; CR Partner's retained profit accounts.

b. DR Profit or loss summary account; CR Partner's capital accounts.

c. DR Profit or loss summary account; CR Partner's retained earnings accounts.

d. DR Profit distribution account; CR Partner's capital accounts.

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.

42. If the fixed capital balances method (method 2) is used to account for partnership equity, both the profit or loss and the partner's drawings are closed to the:

a. partners' retained earnings accounts.

b. partners' capital accounts.

c. profit distribution account.

d. profit or loss summary account.

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.

43. With the variable capital balances method (method 1) of accounting for partnership equity, the general journal entry to record interest on capital is:

a. DR Profit or loss summary account; CR Partner's capital accounts.

b. DR Profit distribution account; CR Partner's retained earnings accounts.

c. DR Profit or loss summary account; CR Partner's retained earnings accounts.

d. DR Profit distribution account; CR Partner's capital accounts.

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.

44. Fiona and Jason have capital balances of $40 000 and $80 000 respectively and use the variable capital balances method. If their profit/loss sharing ratios are Fiona 25% and Jason 75%, the balance of Fiona's capital account after a net loss of $50 000 is:

a. $52 500

b. $23 333

c. $10 000

d. $27 500

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.
Feedback: $27 500 = $40 000 - 25% of $50 000.

45. Macy and John have capital account balances at the end of the year of $100 000 and $25 000 respectively. Profit of the partnership is $105 000. The profit and loss sharing agreement calls for (1) a salary of $40 000 to Macy and $35 000 to John, (2) interest of 5% p.a. on capital balances, (3) the residual profit to be split 80:20 in favour of Macy. Macy's share of the distribution is:

a. $45 000

b. $26 000

c. $41 000

d. $64 000

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.
Feedback: $64 000 = $40 000 + $5000 + ($23 750 x 80%)
$23 750 = Profit $105 000 - total salaries $75 000 less total interest $6250
$6250 = Total capital $125 000 x 5%

46. The partnership agreement between Allen and Barry states that profit and loss sharing arrangements will be based on the ratio of the partner's capital balances. Allen and Barry have capital balances of $90 000 and $60 000 respectively at the end of the accounting period. If profit for the period is $48 000, the profit allocations of each of the partners is:

a. Allen $28 800; Barry $19 200.

b. unable to be calculated from the information provided

c. Allen $24 000; Barry $24 000.

d. Allen $30 000; Barry $18 000.

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.
Feedback: Allen $28 800; Barry $19 200. (Allen=$90 000/$150 000 x $48 000). (Barry=$60 000/$150 000 x $48 000.

47. Paula and Penny have capital balances of $120 000 and $150 000 respectively and use the variable capital balances method. If their profit/loss sharing ratios are Paula 40% and Penny 60%, the balance of Penny's capital balance after a profit of $60 000 is:

a. $186 000

b. $114 000

c. $174 000

d. $150 000

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.
Feedback: $186 000 = $150 000 + 60% of $60 000.

48. Bonnie and Cathy have a profit and loss sharing agreement where: (1) salaries of $20 000 each are credited, (2) 10% interest is allowed on capital balances (3) the remaining profit or loss is split 60-40 in favour of Bonnie. At the end of the year, before the distribution of profits or losses, capital account balances were $50 000 and $35 000 for Bonnie and Cathy, respectively. Profit for the year was $66 000 before distributions to partners. Assuming capital balances are adjusted to reflect profits and losses, what is Bonnie's ending capital account balance?

a. $89 600

b. $64 600

c. $85 500

d. $35 500

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.
Feedback: $50 000 + $20 000 + $5000 + [$17 500 residual profit × 60%]
Residual profit $17 500 = $66 000 - salaries $40 000 - interest $8500

49. Louise and Thelma are in partnership sharing residual profits and losses 50:50. The profit for the year is $96 000. Thelma is entitled to a salary of $40 000 per annum (to be paid by means of a book entry). The amount credited to Thelma's retained earnings account after the final distribution of profits is:

a. $68 000

b. $88 000

c. $48 000

d. $28 000

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.
Feedback: $68 000 = $40 000 + 50% of $56 000

50. Hodges and Burton formed a partnership with capital of $30 000 and $45 000 respectively. The partnership agreement provides for the crediting of annual salaries of $45 000 to Hodges and $75 000 to Burton. Each partner is entitled to 20% interest on capital. The remaining profit or loss is divided equally. Assuming capital balances are adjusted to reflect profits and losses, how much, in total, will be credited to Burton's capital account if profit for the year is $198 000?

a. $ 85 500

b. $ 82 500

c. $115 500

d. $ 52 500

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.
Feedback: $75 000 + $9000 + $31 500

51. Simon and Keith have a profit and loss sharing agreement where: (1) salaries of $30 000 each are credited, (2) 6% interest is allowed on capital balances (3) the remaining profit or loss is split 75-25, respectively. At the end of the year, before the distribution of profits or losses, capital account balances were $40 000 for Simon and $20 000 for Keith. There was a profit of $50 000 before distributions to the partners. What is Keith's year-end capital account balance assuming capital balances are adjusted to reflect profits and losses?

a. $62 200

b. $54 600

c. $82 600

d. $47 800

General Feedback:

Learning objective 8.6: explain the accounting entries for the allocation of profits and losses of a partnership.
Feedback: $20 000 + $30 000 + $1200 - [$13 600 residual loss × 25%]

52. When a partner makes an advance or loan to the partnership, which of the following statements is correct?
I. The partner is entitled to interest at the rate of 7% p.a. unless there is an agreement to the contrary.
II. The amount loaned is added to the partner's equity account balance.
III. Interest on the loan is regarded as an expense of the partnership and appears in the statement of financial performance.

a. I and III

b. II and III

c. I, II and III

d. I and II

General Feedback:

Learning objective 8.7: explain the accounting entries for drawings and advances or loans made by partners.

53. Gemma and Audrey are in partnership. Their capital balances at the end of the accounting period are $200 000 and $150 000 respectively. Gemma decides to make a permanent cash withdrawal from her capital account of $75 000. Assuming the fixed capital balances method (method 2) is used, the accounting entry to record this transaction is:

a. DR Gemma retained earnings account $75 000; CR Profit distribution account $75 000

b. DR Gemma capital account $75 000; CR Profit distribution account $75 000

c. DR Gemma retained earnings account $75 000; CR Bank account $75 000

d. DR Gemma capital account $75 000; CR Bank account $75 000

General Feedback:

Learning objective 8.7: explain the accounting entries for drawings and advances or loans made by partners.

54. The partnership agreement of Snowy and Brodie provides that interest at 2% per annum is to be charged on partners' drawings. During the year ended 31 December drawings by both partners were:

What is the total amount of interest on drawings chargeable to Brodie's current account for the year?

a. $73

b. $31

c. $62

d. $56

General Feedback:

Learning objective 8.7: explain the accounting entries for drawings and advances or loans made by partners.
Feedback: ($3600 × 8/12 × 2%) + ($800 × 6/12 × 2%) + ($1200 × 3/12 × 2%)

55. How is the allocation of partnership profits affected by drawings?

a. Drawings only affect profit allocation if the partnership agreement provides for interest on drawings.

b. Drawings must be deducted from partners' salaries.

c. Drawings must be deducted from profits before they are allocated.

d. Drawings must be added back to profits before they are allocated.

General Feedback:

Learning objective 8.7: explain the accounting entries for drawings and advances or loans made by partners.

56. A partner makes a cash advance to the partnership which is to be repaid in three years' time. The partner does not wish this advance to be included as a capital contribution. The correct classification for this in the statement of financial position.is:

a. Non-current liability

b. Non-current asset

c. Current asset

d. Current liability

General Feedback:

Learning objective 8.7: explain the accounting entries for drawings and advances or loans made by partners.

57. Partner's drawings are:

a. cash amounts withdrawn or private expenses paid by the partnership on behalf of a partner, in anticipation of profits.

b. partner's artwork.

c. money borrowed from the partnership.

d. amounts credited for working in the partnership.

General Feedback:

Learning objective 8.7: explain the accounting entries for drawings and advances or loans made by partners.

58. Gemma and Audrey are in partnership. Their capital balances at the end of the accounting period are $200 000 and $150 000 respectively. Gemma decides to make a permanent cash withdrawal from her capital account of $75 000. Assuming the variable capital balances method (method 1) is used, the correct accounting entry to record this transaction is:

a. DR Gemma - Retained earnings account $75 000; CR Profit distribution account $75 000

b. DR Gemma - Retained earnings account $75 000; CR Cash account $75 000

c. DR Gemma - Capital account $75 000; CR Profit distribution account $75 000

d. DR Gemma - Capital account $75 000; CR Cash account $75 000

General Feedback:

Learning objective 8.7: explain the accounting entries for drawings and advances or loans made by partners.

59. Interest paid on a loan provided by a partner should be:

a. .recognised as income for the partner who provided the loan.

b. recorded as a prepayment in the statement of financial position.

c. recognised by the partnership as an expense.

d. a distribution of profit in the profit or loss distribution account

General Feedback:

Learning objective 8.7: explain the accounting entries for drawings and advances or loans made by partners.

60. Which statement concerning drawings by partners in a partnership is correct?

a. Charging interest on drawings acts as an incentive to partners to withdraw money from the partnership.

b. Drawings are generally regarded as withdrawals of future profits.

c. Interest is charged on drawings if the partnership agreement is silent on the matter.

d. Drawings are taken into account when calculating the final distribution of profit between the partners.

General Feedback:

Learning objective 8.7: explain the accounting entries for drawings and advances or loans made by partners.

61. Sometimes the partnership agreement may specify that interest is to be charged on partner's drawings. The main reason for such a charge is:

a. to act as a disincentive to partners withdrawing excessive amounts from the partnership.

b. to increase the income of the partnership.

c. to encourage partner's to withdraw extra amounts.

d. to reduce partnership profits.

General Feedback:

Learning objective 8.7: explain the accounting entries for drawings and advances or loans made by partners.

62. The part of the financial statements of a partnership that differs most from that of a sole trader is the:

a. equity section of the statement of financial position.

b. income section of the statement of financial performance.

c. expense section of the statement of financial performance.

d. assets section of the statement of financial position.

General Feedback:

Learning objective 8.8: describe the content of the financial statements of a partnership.

63. When the final financial statements are prepared the profit or loss allocation for a partnership is normally shown in the:

a. profit distribution statement.

b. cash distribution statement.

c. profit or loss allocation statement.

d. statement of changes in partner's equity.

General Feedback:

Learning objective 8.8: describe the content of the financial statements of a partnership.

64. A partnership that is a reporting entity must produce which of these financial statements?
i. statement of financial performance.
ii. Statement of financial position.
iii. Statement of cash flows
iv. Statement of changes in partners' equity

a. None of these statements

b. i, iii

c. i, ii, iii

d. i, ii, iii, iv

General Feedback:

Learning objective 8.8: describe the content of the financial statements of a partnership.

65. Which of the following statements relating to financial reports for a partnership is incorrect?

a. Income tax expense is deducted from the partnership profit at the end of the statement of financial performance.

b. Partners' salaries are normally treated as an allocation of profit.

c. Each individual partner's equity in the business is reported separately.

d. Interest on capital contributions is treated as an allocation of profits.

General Feedback:

Learning objective 8.8: describe the content of the financial statements of a partnership.