Advanced Accounting chapter 14

Cleary, Wasser, and Nolan formed a partnership on January 1, 2021, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2021 and $180,000 in 2022. Each partner withdrew $1,000 for personal use every month during 2021 and 2022.What was Wasser's total share of net income for 2021? a. $63,000. b. $53,000. c. $58,000. d. $29,000. e. $51,000.

a. $63,000. Interest $15,000 + Salary $10,000 + Remainder (40%) $38,000 = $63,000

The capital account balances for Donald & Hanes LLP on January 1, 2019, were as follows: Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to admit May to the partnership with a 35% interest in partnership capital and net income. May invested $100,000 cash, and the partnership uses the bonus method. What is the balance of Hanes's capital account after the new partnership is created? a. $84,000. b. $100,000. c. $140,000. d. $176,000. e. $200,000.

a. $84,000. Bonus to May $40,000 × .40 = $16,000 from Hanes' $100,000 = $84,000 New Capital Balance

Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000 respectively. The partners share profits and losses 20%, 40%, and 40% respectively. Anne retires and is paid $80,000 based on an independent appraisal of the business. If the goodwill method is used, what is the capital of the remaining partners? a. Donald, $55,000; Todd, $60,000 b. Donald, $40,000; Todd, $30,000 c. Donald, $65,000; Todd, $55,000 d. Donald, $15,000; Todd, $30,000

a. Donald, $55,000; Todd, $60,000 Anne receives an additional $30,000 above her capital balance. Since she is assigned 40 percent of all profits and losses, this extra allocation indicates total goodwill of $75,000, which must be split among all partners. 40% of Goodwill = $30,000 .40 G = $30,000 G = $75,000 Donald = 20% Goodwill = $15,000. $40,000 + $15,000 = $55,000. Todd = 40% Goodwill = $30,000. $30,000 + $30,000 = $60,000.

Paul and Mark are partners having capital balances of $50,000 and $60,000, respectively, and share profits and losses equally. Jay is going to invest $65,000 into the business to acquire a one-third ownership interest. If the bonus method is used to record Jay's admission to the partnership: a. Jay's capital will be $58,333. b. Mark's capital will be $70,000. c. Paul's capital will be $46,667. d. Total capital will be $195,000. e. Goodwill will be recorded at $15,000.

a. Jay's capital will be $58,333. Paul Mark Jay Original Capital 50,000 60,000 Jay's payment (65K x 50%) 32,500 32,500 Allocation to Jay (33%) (29,167) (29,166) 58,333 53333 63,334 58,333

Which one of the following is a reason for the popularity of partnerships as a legal form for businesses? a. Partnerships avoid the double taxation of income that is found in corporations. b. Partnerships require a written Articles of Partnership. c. In some cases, losses may be used to offset gains for income tax purposes. d. Partners in partnerships are not subject to unlimited liability. e. Partnerships avoid mutual agency.

a. Partnerships avoid the double taxation of income that is found in corporations.

The dissolution of a partnership occurs a. only when the partnership sells its assets and permanently closes its books. b. only when a partner leaves the partnership. c. at the end of each year, when income is allocated to the partners. d. only when a new partner is admitted to the partnership. e. when there is any change in the individuals who make up the partnership.

a. only when the partnership sells its assets and permanently closes its books.

The advantages of the partnership form of business organization, compared to corporations, include a. single taxation. b. ease of raising capital. c. mutual agency. d. limited liability. e. difficulty of formation.

a. single taxation.

Cleary, Wasser, and Nolan formed a partnership on January 1, 2021, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2021 and $180,000 in 2022. Each partner withdrew $1,000 for personal use every month during 2021 and 2022.What was Cleary's capital balance at the end of 2021? a. $100,000. b. $117,000. c. $119,000. d. $129,000. e. $153,000.

b. $117,000. Beginning $100,000 + Interest $10,000 + Salary $0 + Remainder (20%) $19,000 - Withdrawals $12,000 = $117,000

Cleary, Wasser, and Nolan formed a partnership on January 1, 2021, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2021 and $180,000 in 2022. Each partner withdrew $1,000 for personal use every month during 2021 and 2022.What was Wasser's capital balance at the end of 2021? a. $150,000. b. $160,000. c. $165,000. d. $213,000. e. $201,000.

e. $201,000. Beginning $150,000 + Interest $15,000 + Salary $10,000 + Remainder (40%) $38,000 - Withdrawals $12,000 = $201,000

P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest.If C contributes $40,000 to the partnership and the goodwill method is used, what amount will be debited for goodwill? a. $15,000 b. $20,000 c. $25,000 d. $28,000 e. $60,000

e. $60,000 $40,000/20% = $200,000 - Current Capital $100,000 - New Cash $40,000 = $60,000 Goodwill

The dissolution of a partnership occurs a. only when the partnership sells its assets and permanently closes its books. b. only when a partner leaves the partnership. c. at the end of each year, when income is allocated to the partners. d. only when a new partner is admitted to the partnership. e. when there is any change in the individuals who make up the partnership.

e. when there is any change in the individuals who make up the partnership.

A partnership began its first year of operations with the following capital balances: Young, Capital$143,000Eaton, Capital$104,000Thurman, Capital$143,000 The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 and $13,000 salary was to be awarded to Thurman. Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year. The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively. Each partner withdrew $13,000 per year. Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year. What was the balance in Young's Capital account at the end of the first year? a. $120,900. b. $118,300. c. $126,100. d. $80,600. e. $111,500.

b. $118,300. Beginning $143,000 + Interest $14,300 + Salary $26,000 + Remainder (50%) ($52,000) − Withdrawals $13,000 = Ending Balance $118,300

Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000 respectively. The partners share profits and losses 20%, 40%, and 40% respectively. Anne retires and is paid $80,000 based on the terms of the original partnership agreement. If the bonus method is used, what is the capital of the remaining partners? a. Donald, $40,000; Todd, $30,000 b. Donald, $30,000; Todd, $10,000 c. Donald, $50,000; Todd, $50,000 d. Donald, $24,000; Todd, $18,000

b. Donald, $30,000; Todd, $10,000 The $30,000 bonus is deducted from the remaining partners according to their relative profit and loss ratio. Donald = 20% and Todd = 40% which is a 1/3, 2/3 split. Donald = $40,000 - (1/3 x $30,000) = $30,000. Todd = $30,000 - (2/3 x $30,000) = $10,000.

Paul and Mark are partners having capital balances of $50,000 and $60,000, respectively, and share profits and losses equally. Jay is going to invest $65,000 into the business to acquire a one-third ownership interest. If the goodwill method is used to record Jay's admission to the partnership: a. Jay's capital will be $58,333. b. Mark's capital will be $70,000. c. Paul's capital will be $46,667. d. Total capital will be $175,000. e. Goodwill will be recorded at $15,000

b. Mark's capital will be $70,000 Implied value (65,000 / one third)= 195,000 Total Capital (50k+60K+65K)= (175,000) Goodwill 20,000 Paul Mark Jay Original Capital 50,000 60,000 Goodwill (20k x 50%) 10,000 10,000 Jay's payment 65,000 60,000 70,000 65,000

The disadvantages of the partnership form of business organization, compared to corporations, include a. the legal requirements for formation. b. unlimited liability for the partners. c. the requirement for the partnership to pay income taxes. d. the extent of governmental regulation. e. the complexity of operations.

b. unlimited liability for the partners.

Algood and Gaw began a partnership on January 2 of the current year. Algood invested cash of $150,000 as well as inventory costing $30,000, but with a current appraised value of $50,000. Gaw contributed land with a $60,000 book value and a $90,000 fair market value. The partnership also accepted responsibility for a $70,000 note payable owed in connection with the land. The partners agreed to begin operations with equal capital balances. Assuming that the bonus method was used by this partnership, what was Algood's initial capital balance? a. $200,000 b. $145,000 c. $110,000 d. $120,000 e. $85,000

c. $110,000 Under the bonus method, all contributed property is recorded at fair value specified by the articles of partnership, total capital is then divided by partners. Total capital (net assets) is calculated as follows: Cash $150,000+Inventory $50,000+Land $90,000 - Notes Pay $70,000=Total Capital 220,000 x Algoods' percentage 50%=$110,000

The capital account balances for Donald & Hanes LLP on January 1, 2022, were as follows: Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to admit May to the partnership with a 35% interest in partnership capital and net income. May invested $100,000 cash, and the partnership uses the bonus method. What is the balance of May's capital account after the new partnership is created? a. $84,000. b. $100,000. c. $140,000. d. $176,000. e. $200,000.

c. $140,000. Donald $200,000 + Hanes $100,000 + Cash $100,000 = $400,000 × .35 = $140,000 to May

Paul and Mark form a partnership on January 1 of the current year. Paul contributes $50,000 and Mark contributes $100,000 and a building worth $200,000. The building is subject to a mortgage of $40,000, which is assumed by the partnership. Paul and Mark agree to share profits and losses equally. Mark's beginning capital account should be: a. $300,000. b. $280,000. c. $155,000. d. $260,000. e. $150,000.

d. $260,000. Cash 100,000 Building 200,000 Less Mortgage (40,000) Total Contribution 260,000

Which of the following is not a characteristic of a partnership? a. The partnership itself pays no income taxes. b. It is easy to form a partnership. c. Any partner can be held personally liable for all debts of the business. d. A partnership requires written Articles of Partnership. e. Each partner has the power to obligate the partnership for liabilities.

d. A partnership requires written Articles of Partnership.

Which of the following is not a characteristic of a partnership? a. Limited life b. Mutual agency c. Unlimited liability d. Double taxation of income e. Ease of formation

d. Double taxation of income