True / False Questions

1. Limited personal liability is a characteristic of a sole proprietorship.

2. The ability of a sole proprietorship to pay its debts may be determined by the financial strength of the owner.

3. The assets of a partnership belong jointly to all the partners while the assets of a sole proprietorship belong to the proprietorship.

4. A partnership has a limited life and each partner has unlimited personal liability.

5. Mutual agency refers to the ability of each partner to withdraw cash and other assets at will.

6. In a limited liability partnership, a partner has unlimited liability for his own actions and limited liability for the actions of his partners.

7. The salaries paid to partners are shown as an expense on the income statement while the salary taken by a sole proprietor is debited to a drawing account.

8. A corporation is a legal entity that may enter into contracts, may sue or be sued, and is responsible for its own debts.

9. Every stockholder in a corporation will have a drawing account that will be closed to retained earnings during the closing process.

10. A corporation, as well as a partnership, must file a corporate income tax return and pay tax on its earnings.