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CHAPTER13ACCOUNTINGFORPARTNERSHIPSANDLIMITEDLIABILITYCORPORATIONSChapter13—AccountingforPartnershipsandLimitedLiabilityCorporations317Chapter13—AccountingforPartnershipsandLimitedLiabilityCorporationsTRUE/FALSE1.Thereareonlyfourlegalstructurestoformandoperateabusiness.ANS:FDIF:1OBJ:012.Inageneralpartnership,eachpartnerisindividuallyliabletocreditorsfordebtsincurredbythepartnership,totheextentofthepartner'scapitalbalance.ANS:FDIF:1OBJ:013.Apartnershipisalegalentityseparatefromitsowners.ANS:FDIF:1OBJ:014.Apartnershipissubjecttofederalincometaxes.ANS:FDIF:1OBJ:015.Adisadvantageofpartnershipsisthemutualagencyofallpartners.ANS:TDIF:1OBJ:016.Eachpartnershipmusthaveawrittenpartnershipagreement.ANS:TDIF:1OBJ:017.Eachpartnermaywithdrawtheassetsheorshecontributedtothepartnershipatanytime.ANS:FDIF:2OBJ:018.Whencomparedtoacorporation,oneofthemajordisadvantagesofthepartnershipisitslimitedlife.ANS:TDIF:1OBJ:019.Whencomparedtoacorporation,oneofthemajoradvantagesofapartnershipisitseaseofformation.ANS:TDIF:1OBJ:01Chapter13--AccountingforPartnershipsandLimitedLiabilityCorporations31810.UnderaSubchapterSCorporation,theIRSallowsincometopassthroughthecorporationtotheindividualstockholderswithoutthecorporationhavingtopaytaxesontheincome.ANS:TDIF:2OBJ:0111.ALimitedLiabilityCorporationisabusinessentityformthatcombinestheadvantagesofthecorporationandthepartnershipforms.ANS:TDIF:1OBJ:0112.Fortaxpurposes,aLimitedLiabilityCorporationmayelecttobetreatedasapartnership.ANS:TDIF:1OBJ:0113.TheLimitedLiabilityCorporationmayelecttobemanagermanagedratherthanmembermanagedwhichmeansthatonlyauthorizedmembersmaylegallybindthecorporation.ANS:TDIF:1OBJ:0114.Eachpartnerhasaseparatecapitalandwithdrawalaccount.ANS:TDIF:1OBJ:0215.Thechartofaccountsforapartnership,withtheexceptionofdrawingandcapitalaccounts,doesnotdifferfromthechartofaccountsforasoleproprietorship.ANS:TDIF:1OBJ:0216.Whentherearesignificantchangesinstockholdersequity,generally,aretainedearningsstatementisnotsufficient,requiringastatementofstockholders'equitytobeprepared.ANS:TDIF:1OBJ:0217.TheequityreportingforaLimitedLiabilityCorporationissimilartothatofapartnershipbutthechangesincapitalareshownonastatementofmembers'equity.ANS:TDIF:1OBJ:0218.Whenapartnerinvestsnoncashassetsinapartnership,theassetsarerecordedatthepartner'sbookvalue.ANS:FDIF:2OBJ:0319.Accountsreceivablecontributedtothepartnershiparerecordedattheirfacevalue.ANS:TDIF:1OBJ:03Chapter13—AccountingforPartnershipsandLimitedLiabilityCorporations31920.Anewpartnercontributesaccountsreceivabletoapartnershipwhichappearintheledgerofhissoleproprietorshipat$20,500andtherewasanallowancefordoubtfulaccountsof$750.If$600oftheaccountsreceivablesarecompletelyworthless,thepartnershipaccountsreceivableshouldbedebitedfor$19,900.ANS:TDIF:2OBJ:0321.Onereasonthatdistributionsofincomeandlossarepreparedistoobtaintheinformationtorecordaclosingentry.ANS:TDIF:1OBJ:0422.Ifnothingisstated,partnershipincomeisdividedinproportiontotheindividualpartner'scapitalbalance.ANS:FDIF:2OBJ:0423.Thesalaryallocationtopartnersusedindividingnetincomewouldalsoappearassalaryexpenseonthepartnershipincomestatement.ANS:FDIF:2OBJ:0424.Ifthearticlesofpartnershipprovideforannualsalaryallowancesof$36,000and$18,000toXandYrespectivelyandnetincomeis$30,000,X'sshareofnetincomeis$20,000.ANS:FDIF:2OBJ:0425.Ifthenetincomeofapartnershipislessthanthetotaloftheallowancesprovidedbythepartnershipagreement,thedifferencemustbedividedamongthepartnersintheincome-sharingratio.ANS:FDIF:2OBJ:0426.Theamountthatapartnerwithdrawsasamonthlysalaryallowancedoesnotaffectthedivisionofnetincome.ANS:TDIF:2OBJ:0427.AdevotesfulltimeandBdevotesone-halftimetotheirpartnership.Ifthepartnershipagreementissilentconcerningthedivisionofnetincome,Awillreceivea$20,000shareofanetincomeof$30,000.ANS:FDIF:2OBJ:04Chapter13--AccountingforPartnershipsandLimitedLiabilityCorporations32028.Inthedistributionofincome,thenetincomeislessthanthesalaryandinterestallowancesgranted,theremainingbalancewillbeanegativeamountthatmustbedividedamongthepartnersasthoughitwerealoss.ANS:TDIF:2OBJ:0429.Detailsofthedivisionofpartnershipincomeshouldnormallybedisclosedinthefinancialstatements.ANS:TDIF:2OBJ:0430.Wheneverapartnershipisdissolved,theassetsareliquidated.ANS:FDIF:1OBJ:0531.Whenapartnershipdissolves,anewpartnershipisformedandanewpartnershipagreementshouldbeprepared.ANS:TDIF:1OBJ:0532.Manypartnershipsprovidefortheadmissionofnewpartnersorwithdrawalsofpresentpartnersinthepartnershipagreementsothatthefirmmaycontinuetooperatewithoutexecutinganewagreement.ANS:TDIF:1OBJ:0533.Apersonmaybeadmittedtoapartnershiponlywiththeconsentofallthecurrentpartners.ANS:TDIF:1OBJ:0534.Partnership'sassetaccountsshouldbechangedfromcosttofairmarketvaluewhenanewpartnerisadmittedtoafirmoranexistingpartnerwithdrawsanddies.ANS:TDIF:2OBJ:0535.Inadmittinganewpartner,thecompanychoosestousethepurchaseofaninterestmethod,thecapitalinterestofthenewpartnerisobtainedfromthecurrentpartnersandboththetotalassetsandtotalcapitalareincreased.ANS:FDIF:2OBJ:0536.Whenanewpartnerpurchasesth