Principles of Accounting Chapter 12

1. A major advantage of the partnership form is that the personal assets of the partners are protected from creditors in case of legal action- False 2. A partnership is considered an “entity” for accounting purposes- True 3. “Mutual agency” means that one partner can legally bind all the other partners to a contract if it appears that he or she is acting appropriately- True 4. Partners are taxed on their drawings regardless of their share of the income. False 5. If a partnership agreement is silent regard to how profits and losses are to be shared, they will be deemed to be shared in the ratio of capital balances- False 6. If the formation of a new partnership, the fair value of any asset brought into the partnership from another business is recorded on the partnership books- True 7. “Salary and interest allowances” are simply ways to distribute earnings and are not true salaries and interest- True 8. If the profit and loss ratio is 12:7:1 and the net income is $100,000, the division will be $60,000/$30,000/$10,000- False 9. At eh end of each year, partner’s drawings must be the same as the profit and loss ratio- False 10. During liquidation, gains and losses are divided according to the profit and loss ratios- True 11. A limited partnership means that it is limited to only one type of business- False 12. The final cash distribution of a liquidating partnership is always made according to the final capital balances of the partners- True 13. If a partnership suffers a loss, Income Summary will be closed with a debit- False 14. Admission of a new partner or the death of a partner will cause the dissolution of a partnership- True 15. The capital section of a partnership balance sheet has 2 sections: partners’ capital and retined earnings- False 1. Which of the following statements is false? Unlimited liability is an important advantage of the partnership form 2. Which of the following is an advantage of