Accounting for Partnerships

Mark Rensing has prepared the following list of statements about partnerships

1. A partnership is an association of three or more persons to carry on as co-owners of a business for profit.
2. The legal requirements for forming a partnership can be quite burdensome.
3. A partnership is not an entity for financial reporting purposes.
4. The net income of a partnership is taxed as a separate entity.
5. The act of any partner is binding on all other partners, even when partners perform business acts beyond the scope of their authority.
6. Each partner is personally and individually liable for all partnership liabilities
7. When a partnership is dissolved, the assets legally revert to the original contributor.
8. In a limited partnership, one or more partners have unlimited liability and one or more partners have limited liability for the debts of the firm.
9. Mutual agency is a major advantage of the partnership form of business.

Instructions

Solution

1. False. Correct Answer: A partnership is an association of two or more persons to carry on as co-owners of a business for profit.
2. False. Correct Answer: Partnerships are fairly easy to form. People form partnerships simply by a verbal agreement or more formally by written agreement.
3. False. Correct Answer: A partnership is an entity for financial reporting purposes.
4. False. Correct Answer: The net income of a partnership is not taxed as a separate entity
5. True
6. True
7. False. Correct Answer: When a partnership is dissolved, the assets do not legally revert to the original contributor
8. True
9. False. Correct Answer: Mutual agency is a disadvantage of the partnership form of business