Last revised: September 2018
SOLUTIONS MANUAL TO ACCOMPANY
FUNDAMENTAL ACCOUNTING PRINCIPLES
17TH CANADIAN EDITION BY LARSON
DIECKMANN HARRIS LATEST UPDATE
2025/2026 A+
1
,Last revised: September 2018
C hapter 11 Partnerships
C hapter Opening Critical Thinking Challenge Questions*
What Were The Advantages Of Elana And Leo Choosing The Partnership Form Of A Business
Organization?
When Elana And Leo Returned Home With The Vision For The Product, The Partnership Form Of
Business Organization Was An Advantage As They Were Able To Quickly Get The Company
S tarted After Setting Up Bank Financing, Taking Advantage Of Ease Of Formation And Low Start-
Up Costs.
Leo And Elana Also Chose The Partnership Form Of Business Organization, As They Were Able To
Take Advantage Of Less Bureaucracy Than Corporations, And They Felt They Could Focus On The
Areas Of Their Talent.
By Both Being Involved In The Partnership, Leo And Elana Were Able To Focus On Areas Of The
Business That Matched With Their Skillsets, Increasing Effectiveness From Pooling Talent. Leo
Focused On Roasting, Design And Operations, And Elana Managed Sales, Marketing And Finance.
When Starting Up Kicking Horse Coffee, There Were Quite A Few Advantages For Elana And Leo
To C hoose The Partnership Form Of A Business Organization; However, In Retrospect, Elana
Advises Future Business Owners Considering A Partnership To Avoid A 50/50 Split, As It Can
Lead To Issues When Conflicting Views Surface. S he Also Suggests Obtaining Good Legal
C ounsel To Develop The Partnership Agreement. This Is Particularly Prudent For Young, New
Business Owners To Minimize The Conflicts And Address Potential Areas Of Concerns Before The
Business Gets Started.
The Chapter 11 Critical Thinking Challenge Questions Are Asked At The Beginning Of This Chapter.
S tudents Are Reminded At The Conclusion Of The Chapter To Refer To The Critical Thinking
C hallenge Questions At The Beginning Of The Chapter. The Solutions To The Critical Thinking
C hallenge Questions Are Available Here In The Solutions Manual And Accessible To Students On
C o nnect.
2
,Last revised: September 2018
Knowledge Check-Up Questions
1. D) 2 . C) 3. B) 4 . C) 5. A)
6 . B) 7 . C) 8. A) 9 . D) 10. C)
C o ncept Review Questions
1. No . Partners Have The Right To Select The People With Whom They Associate Them s elv es
As Partners .
2. Death, Bankruptcy, Or The Legal Inability Of A Partner To Contract Ends A Partners hip. In
Addition, If A Partnership Is Organized For The Purpose Of Completing A Specific Bus ines s
Project, The Partnership Ends When The Project Is Completed. If The Busines s Fo r Whic h
The Partnership Was Organized Cannot Be C o m pleted But Go es On Indefinitely , The
Partners hip May Be Dis s o lv ed At The Will Of Any One Of Its Partners .
3. Mutual Agency Means That Each Partner Is An Agent Of The Partnership And Can Commit It
To C o ntrac ts That Are Within The S c o pe Of Its Bus ines s .
4. Y es. S uch An Agreement Is Binding On Members Of The Partnership. It Is Also Binding On
Outsiders Who Know Of The Agreement. However, It Is Not Binding On Outsiders Who Do Not
Kno w Of The Agreem ent.
5. Unlimited Liability Means That The Creditors Of A Partnership Have The Right To Require
Each Partner To Be Pers o nally Res po ns ible Fo r All Debts Of The Partners hip.
6. All Partners In A General Partnership Have Unlimited Liability . A Lim ited Partners hip
Includes Both General And Limited Partners, But The Limited Partners Hav e No Pers o nal
Liability For Partnership Debts. Also, The General Partners Assume The Management Duties
Of The Partners hip.
7. Leung’s Claim Is Not Valid Unless The Previously Agreed Upon Method Of Sharing Profit And
Losses Granted Leung An Annual Salary Of $25,000. Unless The Partners hip Agreem ent
S ays Otherwise, Partners Have No Claim To A Salary Allo wanc e In Pay m ent Fo r Their
S erv ic es .
8. If Partners Agree On The Method Of Sharing Profit, But Say Nothing Of Losses, Any Lo s s es
Are S hared In The S am e Manner As Pro fit.
9. The Allocation Of Profit To The Partners Is Reported On The Statement Of C hanges In Equity .
10. At All Times In The Accounting History Of A Partnership, Assets Must Equal Liabilities Plus
Owners’ Equity. When The Assets Are Converted To Cash, Any Gains Or Losses Are Allocated To
The Capital Accounts Of The Partners; And When Creditors’ Claim s Are Paid, As s ets And
Liabilities Are Reduced By Equal Amounts. Therefore, When The Remaining Assets Are In The
Form Of Cash, The Amount Of Cash Must Equal The Proprietary C laim s Of The Partners .
11. No . Kay Is S till Liable To Her Fo rm er Partners Fo r Her S hare Of The Lo s s es .
12. The Remaining Partners Should Share The Decline In Their Equities In Accordance With Their
Profit-And-Loss-Sharing Ratio
3
, Last revised: September 2018
13. Advantages Of A 50/50 Partnership Split:
Each Partner Has An Equal Share In The Distribution Of Profits
Provides Both Partners An Equal Say In The Management Of The Business
Disadvantages Of A 50/50 Split:
If A Disagreement Arises In The Partnership, Remediation Can Be A Challenge And Can
Result In A Significant Delay On Important Decisions. To Overcome This, It Is Helpful To
Allocate A Small Percentage Of The Ownership Of The Partnership To A Third Party To Act
As A Mediary.
One Partner May Feel They Contribute More To The Partnership In Terms Of Time, Expertise
Etc. And A 50% Profit Distribution May Not Be Equitable. An Option May Be To Have A
Detailed Partnership Agreement That Provides Additional Compensation By Way Of A Salary
Allowance Or A Stated Income Allocation Rate Of 1.5:1 Or 2:1.
Benefits Of Obtaining Legal Counsel To Form A Partnership Agreement:
Legal Counsel Helps To Provide Advice To The Partners In Structuring An
Effective Partnership Agreement. Partnership Agreements Are Important To Ensure The
Partnership Functions Effectively And Disagreements Are Minimized. Topics The
Partnership Agreement Should Include: Who Has Signing Authority On Bank Accounts/Debt
Acquisition, Describe The Role And Expectations/Contributions Of Each Partner, Specific
Terms Relating To Profit Allocations And Salary Allowances, Approach To Making
Key Decisions, And Approach To Resolution In The Event Of A Dispute.
4
SOLUTIONS MANUAL TO ACCOMPANY
FUNDAMENTAL ACCOUNTING PRINCIPLES
17TH CANADIAN EDITION BY LARSON
DIECKMANN HARRIS LATEST UPDATE
2025/2026 A+
1
,Last revised: September 2018
C hapter 11 Partnerships
C hapter Opening Critical Thinking Challenge Questions*
What Were The Advantages Of Elana And Leo Choosing The Partnership Form Of A Business
Organization?
When Elana And Leo Returned Home With The Vision For The Product, The Partnership Form Of
Business Organization Was An Advantage As They Were Able To Quickly Get The Company
S tarted After Setting Up Bank Financing, Taking Advantage Of Ease Of Formation And Low Start-
Up Costs.
Leo And Elana Also Chose The Partnership Form Of Business Organization, As They Were Able To
Take Advantage Of Less Bureaucracy Than Corporations, And They Felt They Could Focus On The
Areas Of Their Talent.
By Both Being Involved In The Partnership, Leo And Elana Were Able To Focus On Areas Of The
Business That Matched With Their Skillsets, Increasing Effectiveness From Pooling Talent. Leo
Focused On Roasting, Design And Operations, And Elana Managed Sales, Marketing And Finance.
When Starting Up Kicking Horse Coffee, There Were Quite A Few Advantages For Elana And Leo
To C hoose The Partnership Form Of A Business Organization; However, In Retrospect, Elana
Advises Future Business Owners Considering A Partnership To Avoid A 50/50 Split, As It Can
Lead To Issues When Conflicting Views Surface. S he Also Suggests Obtaining Good Legal
C ounsel To Develop The Partnership Agreement. This Is Particularly Prudent For Young, New
Business Owners To Minimize The Conflicts And Address Potential Areas Of Concerns Before The
Business Gets Started.
The Chapter 11 Critical Thinking Challenge Questions Are Asked At The Beginning Of This Chapter.
S tudents Are Reminded At The Conclusion Of The Chapter To Refer To The Critical Thinking
C hallenge Questions At The Beginning Of The Chapter. The Solutions To The Critical Thinking
C hallenge Questions Are Available Here In The Solutions Manual And Accessible To Students On
C o nnect.
2
,Last revised: September 2018
Knowledge Check-Up Questions
1. D) 2 . C) 3. B) 4 . C) 5. A)
6 . B) 7 . C) 8. A) 9 . D) 10. C)
C o ncept Review Questions
1. No . Partners Have The Right To Select The People With Whom They Associate Them s elv es
As Partners .
2. Death, Bankruptcy, Or The Legal Inability Of A Partner To Contract Ends A Partners hip. In
Addition, If A Partnership Is Organized For The Purpose Of Completing A Specific Bus ines s
Project, The Partnership Ends When The Project Is Completed. If The Busines s Fo r Whic h
The Partnership Was Organized Cannot Be C o m pleted But Go es On Indefinitely , The
Partners hip May Be Dis s o lv ed At The Will Of Any One Of Its Partners .
3. Mutual Agency Means That Each Partner Is An Agent Of The Partnership And Can Commit It
To C o ntrac ts That Are Within The S c o pe Of Its Bus ines s .
4. Y es. S uch An Agreement Is Binding On Members Of The Partnership. It Is Also Binding On
Outsiders Who Know Of The Agreement. However, It Is Not Binding On Outsiders Who Do Not
Kno w Of The Agreem ent.
5. Unlimited Liability Means That The Creditors Of A Partnership Have The Right To Require
Each Partner To Be Pers o nally Res po ns ible Fo r All Debts Of The Partners hip.
6. All Partners In A General Partnership Have Unlimited Liability . A Lim ited Partners hip
Includes Both General And Limited Partners, But The Limited Partners Hav e No Pers o nal
Liability For Partnership Debts. Also, The General Partners Assume The Management Duties
Of The Partners hip.
7. Leung’s Claim Is Not Valid Unless The Previously Agreed Upon Method Of Sharing Profit And
Losses Granted Leung An Annual Salary Of $25,000. Unless The Partners hip Agreem ent
S ays Otherwise, Partners Have No Claim To A Salary Allo wanc e In Pay m ent Fo r Their
S erv ic es .
8. If Partners Agree On The Method Of Sharing Profit, But Say Nothing Of Losses, Any Lo s s es
Are S hared In The S am e Manner As Pro fit.
9. The Allocation Of Profit To The Partners Is Reported On The Statement Of C hanges In Equity .
10. At All Times In The Accounting History Of A Partnership, Assets Must Equal Liabilities Plus
Owners’ Equity. When The Assets Are Converted To Cash, Any Gains Or Losses Are Allocated To
The Capital Accounts Of The Partners; And When Creditors’ Claim s Are Paid, As s ets And
Liabilities Are Reduced By Equal Amounts. Therefore, When The Remaining Assets Are In The
Form Of Cash, The Amount Of Cash Must Equal The Proprietary C laim s Of The Partners .
11. No . Kay Is S till Liable To Her Fo rm er Partners Fo r Her S hare Of The Lo s s es .
12. The Remaining Partners Should Share The Decline In Their Equities In Accordance With Their
Profit-And-Loss-Sharing Ratio
3
, Last revised: September 2018
13. Advantages Of A 50/50 Partnership Split:
Each Partner Has An Equal Share In The Distribution Of Profits
Provides Both Partners An Equal Say In The Management Of The Business
Disadvantages Of A 50/50 Split:
If A Disagreement Arises In The Partnership, Remediation Can Be A Challenge And Can
Result In A Significant Delay On Important Decisions. To Overcome This, It Is Helpful To
Allocate A Small Percentage Of The Ownership Of The Partnership To A Third Party To Act
As A Mediary.
One Partner May Feel They Contribute More To The Partnership In Terms Of Time, Expertise
Etc. And A 50% Profit Distribution May Not Be Equitable. An Option May Be To Have A
Detailed Partnership Agreement That Provides Additional Compensation By Way Of A Salary
Allowance Or A Stated Income Allocation Rate Of 1.5:1 Or 2:1.
Benefits Of Obtaining Legal Counsel To Form A Partnership Agreement:
Legal Counsel Helps To Provide Advice To The Partners In Structuring An
Effective Partnership Agreement. Partnership Agreements Are Important To Ensure The
Partnership Functions Effectively And Disagreements Are Minimized. Topics The
Partnership Agreement Should Include: Who Has Signing Authority On Bank Accounts/Debt
Acquisition, Describe The Role And Expectations/Contributions Of Each Partner, Specific
Terms Relating To Profit Allocations And Salary Allowances, Approach To Making
Key Decisions, And Approach To Resolution In The Event Of A Dispute.
4
