1. All of the following are characteristics of partnerships except:
a. Co-ownership of property.
c. Limited life.
b. Mutual agency.
d. Limitedliability.
2. When a partner invests noncash assets in a partnership, the assets should be recorded at their:
a. Book value.
c. Fair market value.
b. Carrying value.
d. Original cost.
3. Which of the following statements is correct?
a. Salaries to partners and interest on partners’ capital are expenses of the partnership.
b. Salaries to partners are an expense of the partnership but not interest on partners’ capital.
c. Interests on partners’ capital are expenses of the partnership but not salaries to partners.
d. Neither salaries to partners nor interest on partners’ capital are expenses of the
partnership.
4. Which of the following typical expense of a corporation is not relevant for a limited liability
partnership?
a. Salaries expense.
b. Interest expense.
c. Income tax expense.
d. Pension expense.
e. None
5. The first step in the liquidation of a partnership is to:
a. Allocate gain or loss on realization to the partners.
b. Distribute remaining cash to partners.
c. Pay partnership liabilities.
d. Sell noncash assets and recognize a gain or loss on realization.
6. If a partner with a capital deficiency is unable to pay the amount owed to the partnership, the
deficiency is allocated to the partners with credit balances:
a. Equally.
b. On the basis of their income ratios.
c. On the basis of their capital balances.
d. On the basis of their original investments.
7. In the liquidation of a limited liability partnership in installments, the partner who receives the
first payment of cash after all liabilities have been paid is the partner having the largest:
a. Capital account balance.
d. Loan account balance.
b. Capital per unit of income sharing.
c. Income-sharing percentage.
8. Which of the following generally is not a method of billing merchandise shipments by
A. Billing at cost.
B. Billing at a percentage above cost.
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C. Billing at a percentage below cost.
D. Billing at retail selling prices.
9. A branch journal entry debiting Home office and crediting Cash may be prepared for:
A. The branch’s transmittal of cash to the home office only.
B. The branch’s acquisition for cash of plant to be carried in the home office accounting
records only.
C. Either A or B.
D. Neither A nor B.
10. A home office’s Allowance for Overvaluation of Inventories: Branch ledger account, which has a
credit balance, is:
A. An asset valuation account.
B. A liability account.
C. An equity account.
D. A revenue account
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11. A journal entry debiting Cash in Transit and crediting Investment in Branch is required for:
A. The home office to record the mailing of a check to the branch early in the according period.
B. The branch to record the mailing of a check to the home office early in the accounting period.
C. The home to record the mailing of a check by the branch on the last day of the accounting
period.
D. The branch to record the mailing of a check to the home office the last day of the accounting
period.’
12. For a home office that uses the periodic inventory system of accounting for shipments of
merchandise to the branch, the credit balance of the Shipments to branch ledger account is displayed in
the HO
A. Income statement as an offset to purchases.
B. Balance sheet as an offset to Investment in Branch.
C. Balance sheet as an offset to Inventories.
D. Income statement as revenue.
13. If the home office maintains accounts in its general ledger for a branch’s plant assets, the branch
debits its acquisition of office equipment to:
A. Home Office.
B. Office Equipment.
C. Payable to Home office.
D. Office Equipment Carried by Home office.
14. When Adane retired from Adane, Ephrem & Feleke limited liability Partnership, he received cash in
excess of his capital account balance. Under the bonus method, the excess cash received by Adane:
A.
B.
C.
D.
Reduced the capital account balances of Ephrem and Feleke.
Had no effect on the capital account balances of Ephrem and Feleke.
Was recognized as goodwill of the partnership.
Was recognized as an operating expense of the partnership.
15. The partnership contract for Firem & Guta LLP provides that “net income or losses are to be
distributed in the ratio of partners’ capital account balances.” The appropriate interpretation of this
provision is that net income or losses should be distributed in:
A.
B.
C.
D.
The ratio of beginning capital account balances.
The ratio of average capital account balances.
The ratio of ending account balances (before distribution of net income or loss).
One of the foregoing methods to be specified by partners Firew and Guta.
16. The income-sharing provision of the contract that established Early & Latte LLP provided that Early
was to receive a bonus of 20% of income after deduction of the bonus, with the remaining income
distributed 40% to Early and 60% to Latte. If income before bonus of Early & Latte was Br.240,000 for
the fiscal year ended June 30, 2009, the capital accounts of Early and Latte should be credited,
respectively, in the amounts of:
A.
B.
C.
D.
E.
Br.124,800 and Br.115,200.
Br.120,000 and Br.120,000.
Br.163,200 and Br.76,800.
Br.96,000 and Br.144,000.
Some other amounts.
17. If home office bills merchandise shipments to the branch at a markup of 20% on cost, the markup on
billed price is:
A.
B.
C.
D.
20%.
162/3%.
25%.
Some other percentage.
18. In accounting, consignment signifies
A.
B.
C.
D.
Goods dispatched for sale from home office to the branch
Merchandise forwarded by the owner to his agent for sale
Goods transported from one place to another
Merchandise dispatched to a broker for the purpose of sale for a commission
19. Which of the following is/are incorrect about consignment?
A.
B.
C.
D.
Goods sold by the consignee are the property of the buyer
The relationship between consignor and consignee is that of principal and agent
The consignee can return the unsold goods to the owner
The consignor bears the losses of goods held with the consignee
20. The combination between enterprises in unrelated enterprises in unrelated industries or markets is
known as;
A.
B.
C.
D.
Stock acquisition
Conglomerate
Vertical combination
Horizontal combination
Work Out Questions
1. East, North, and South, partners of East, North & South LLP, shared net income and losses in a 5 : 3 :
2 ratio, respectively. On December 31, 2007, at the end an unprofitable year, they decided to
liquidate the partnership. The partners’ capital account credit balances on that date were as follows:
East, Br.32,000; North, Br.34,900; South, Br.25,000. The liabilities in the balance sheet amounted to
Br.40,000, including a loan of Br.20,000 payable to East. The cash balance was Br.16,000.
The partners planned to realize the noncash assets over a long period and to distribute cash when it
became available. All three partners were solvent.
Instructions - Prepare a cash distribution program for East, North & South LLP on December 31,
2007, and answer each of the following questions; prepare a working paper to show how you
reached your conclusions. (Each question is independent of the others.)
a. If North received Br.12,000 from the first distribution of cash to partners, how much did East
and South each receive at that time?
b. If East received total cash of Br.30,000 as a result of the liquidation, what was the total amount
realized by the partnership on the noncash assets?
c. If South received Br.16,200 on the first distribution of cash to partners, how much did East
receive at that time?
2. Assume the following information concerning ABC’s sales on installment during the period of 2010:
 Installment Contracts Receivable from sales made during 2008 is 50,000 Birr
 Installment Contracts Receivable from sales made during 2009 is 125,000 Birr
 Installment Contracts Receivable from sales made during 2010 is 240,000 Birr
 Deferred interest and carrying charges on installment sales is 15% of the installment price
 Gross profit rate on the installment sales made during 2010 is 30%
 Gross profit rate on the installment sales made during 2009 is 28%
 Gross profit rate on the installment sales made during 2008 is 25%
The cash collections on installment contracts during 2000 are summarized below:
Installment Contracts
Receivable 2010
Installment contracts
Receivable 2009
Installment contracts
Receivable 1998
Required:
Total Cash
Collected
200,000
Selling Price
170,000
Interest and Carrying
Charges
30,000
100,000
80,000
20,000
28,500
22,000
6,500
328,500
272,000
56,500
Pass the all necessary journal entries with the necessary computations
3. Assume an item sold for Birr 6,000 is defaulted, and the gross profit on the sale was 25%. What types
of journal entries are made under the following methods of establishing value for the repossessed items
assuming that the repositioned items were sold for birr 4300?
a) Book value
b) Zero value
c) Fair market value assuming the repositioned item had a market value of birr 4600
4. On September 1, 2005, ABC Company established the Xyz Branch. Separate accounting records were
set up for the branch. Both the home office and the Eastern Branch use the perpetual inventory system.
Equipment used at the branch is kept in the book of home office account. Expenses are incurred by the
home office on behalf of the home office are billed to the branch. Among the intercompany transactions
were the following:
Sept. 1 Home office mailed a check for Br.50,000 to the branch.
4 Home office shipped merchandise costing Br.95,000 to the branch which is billed at cost.
6 Credit sale by the branch amounts to 130,000 birr, the cost of mdse sold was 70,000 birr.
11 The branch acquired a truck for Br.34,200. The home office maintains the plant assets of the
branch in its accounting records.
15 Collection of accounting receivable by the branch amounted to 100,000 birr.
17 Payment of operating expenses by the branch amounting to 30,000 birr
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Cash of 85,000 was remitted by the branch to the home office
27 Operating expenses incurred by the home office and charged to the branch totaled 10,000
Prepare journal entries for the foregoing intercompany transactions in the accounting records of (a) the
ABC company (home office) and (b) the XYZ Branch.