PRELIMS
B. The new partner's contribution is less than his/her percentage of total partnership capital after the investment is made
A bonus is recognized by existing partners at the date a new partner joins a partnership when which of the following relationships occur? A. The new partner's contribution, exceeds his/her percentage of total partnership capital after the investment is made B. The new partner's contribution is less than his/her percentage of total partnership capital after the investment is made C. The new partner's contribution is equal to his/her percentage of total partnership capital after the investment is made D. It is not possible to determine the answer to this question
B1st statement is False; 2nd statement is True
Statement 1: If existing partners acquire a withdrawing partner's equity, the existing partners must purchase the withdrawing partner's equity in proportion to their residual profit and loss ratios. Statement 2: The revaluation of assets when a partner withdraws from the partnership may be a complete revaluation or a partial revaluation, reflecting the change in value with regard to the withdrawing partner's ownership interest A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
B1st statement is False; 2nd statement is True
Statement 1: Proprietorships and partnerships are different in that proprietors have unlimited legal liability while each partner's legal liability is limited to his/her percentage ownership in the partnership. Statement 2: Partnerships are not required to prepare financial statements in accordance with Generally Accepted Accounting Principles unless they have publicly traded debt or are required to follow GAAP by a creditor. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
DAll statements are False
Statement 1: The ability of partners to withdraw from the partnership is controlled exclusively by the laws of the state when the partnership resides. Statement 2: Partnership are required to indicate the manner in which profits and losses are to be allocated among the partners. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
A1st statement is True; 2nd statement is False
Statement 1: The assumption of a liability by the partnership with regard to a noncash asset contributed to the partnership by a partner will affect the value assigned to the partner's capital account. Statement 2: An asset's carrying value should not be considered when establishing the initial capital accounts of partners. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
B1st statement is False; 2nd statement is True
Statement 1: The dissolution of a partnership occurs only when the partnership is terminating operations and going out of business. Statement 2: One reason a change in the number of partners in a partnership through the addition or withdrawal of a partner is important because the partners have unlimited liability. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
CAll statements are True
Statement 1: The recognition of a bonus to existing partners at the date a new partner is admitted to a partnership often occurs in lieu of the recognition of goodwill for the existing partners. Statement 2: The bonus recognized by existing partners when a new partner is admitted to a partnership is commonly shared among the existing partners based on the existing partners' relative profit and loss residual ratios A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
B
Statement 1: The salary portion of the profit and loss allocation is set in the articles of partnership and will not change over time. Statement 2: The salary portion of the partnership profits and loss allocation is not included in the partnership's income statement. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
A1st statement is True; 2nd statement is False
Statement 1: Theoretically, salary allowances paid to partners should not be reflected as salary in the general ledger. Statement 2: The value assigned to noncash assets invested by partners in a limited partnership is the cost of the assets or the current fair value of the assets at the time of investment, whichever is lower. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
B1st statement is False
Statement 1: When a new partner is joining a partnership by making a payment to the partnership for an amount more than book value, the partners are required to choose one of three methods of recording the new partner's payment in excess of book value. Statement 2: The revaluation of assets and liabilities at the date a new partner joins the partnership, by investing assets directly into the partnership, does not eliminate the possibility that the partnership might need to record bonuses or goodwill as part of the admission of the new partner. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
A1st statement is True; 2nd statement is False
Statement 1: When the goodwill method is applied to recognize the admission of a new partner and the existing partners are responsible for the goodwill, the new partner's capital account will always be established equal to the amount of the contribution to the partnership. Statement 2: The existing partners will always recognize goodwill when a new partner is admitted to the company and the goodwill method is applied. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
C. Capital account
A partner's withdrawal of assets from a limited liability partnership that is considered a permanent reduction in that partner's equity is debited to the partner's: A. Drawing account B. Retained earnings account C. Capital account D. Loan receivable account
B. Unlimited liability
Which of the following is not an advantage of a partnership over a corporation? A. Ease of formation B. Unlimited liability C. The elimination of taxes at the entity level D. All of the above
D. All of the above
Who may acquire the ownership interest of a partner who is withdrawing from a partnership? A. Existing partners B. The partnership C. New investor D. All of the above
B. Purchase of an ownership interest directly from an existing partner
Which of the following forms of new partner admission will not result in a change in the partnership's net asset A. Purchase of an ownership interest directly from the partnership B. Purchase of an ownership interest directly from an existing partner C. Either of the above D. Neither of the above
C. In proportion to profit and loss residual ratios
A bonus recognized by a new partner at the date of admission into the partnership is generally shared by the existing partners in what way? A. Equally B. In proportion to capital account balances C. In proportion to profit and loss residual ratios D. In proportion to salaries
CAll statements are True
Statement 1: A bonus paid to a new partner results in a reduction to the capital accounts of the existing partners in proportion to their profit and loss sharing ratios. Statement 2: The goodwill method of admitting a new partner to a partnership results in greater total assets than the bonus method of admitting a new partner A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
B1st statement is False; 2nd statement is True
Statement 1: A new partner in a partnership accepts unlimited liability for actions that occurred before that partner joined the partnership. Statement 2:The admission of a new partner into a partnership can occur without any new assets being invested into the partnership. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
B1st statement is False; 2nd statement is True
Statement 1: A partner may withdraw from a partnership at any time without notice given to the existing partners. Statement 2: A withdrawing partner may have his/her partnership interest acquired by an outside investor agreed to by the remaining partners, the remaining partners, or the partnership. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
D
Statement 1: A partnership's assets must be revalued when a partner withdraws. Statement 2: When a partnership's assets are revalued at the date a partner withdraws from the partnership, the withdrawing partner's equity must be acquired by the partnership. It cannot be acquired by an outside investor or the existing partners personally. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
CAll statements are True
Statement 1: Assigning a noncash asset the contributor's carrying value could result in a misallocation of gain or loss if the asset is sold. Statement 2: Appraisals are not necessarily required when assigning value to noncash assets contributed to the partnership. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
DAll statements are False
Statement 1: If a new partner is going to acquire an ownership interest in a partnership directly from another partner, the other partners do not need to approve the admission. Statement 2: If a new partner acquires 40 percent of an existing partner's equity in the partnership, the new partner is also entitled to 40 percent of the existing partner's profit and loss allocation A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
A1st statement is True; 2nd statement is False
Statement 1: It is possible for a new partner's capital account to be established at an amount greater than the market value of the identifiable assets invested. Statement 2: New partners are never recipients of bonuses when they join the partnership. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
DAll statements are False
Statement 1: The amount that assets are revalued when a new partner joins a partnership is always shared by existing partners equally. Statement 2: If a new partner's capital account is created for an amount less than the value of net assets contributed, an error has been made in the partnership's accounting records. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
B1st statement is False; 2nd statement is True
Statement 1: When the goodwill method is applied to recognize the admission of a new partner and the new partner is responsible for the goodwill, the new partner's capital account will be established at the amount of the contribution. Statement 2: When new partner goodwill is recognized at the date the partner joins the partnership, the existing partners' capital accounts do not change as a result of the new partner's admission. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
D
Statement 1:Interest on partnership capital is mandatory in dividing profits and losses. Statement 2: Partners are also employees if they are active in the business of the partnership. A1st statement is True; 2nd statement is False B1st statement is False; 2nd statement is True CAll statements are True DAll statements are False
E. When there is any change in the individuals who make up the partnership
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
D. all of the above are possible
Changes in partnership ownership are presumed to be arm's length transactions that may require which of the following actions? A. recognitions of goodwill to existing partners B. revaluation of existing partnership assets C. recognition of goodwill or other intangible assets attributable to the incoming partner D. all of the above are possible
A. In any manner they choose
If existing partners acquire the equity of a withdrawing partner, in what manner do they divide the equity? A. In any manner they choose B. Equally C. Proportionate to their residual profit and loss ratios D. Existing partners are not permitted to acquire the equity of a withdrawing partner
C. Allocation of net income
In a partnership interest on capital investment is accounted for as a(an) A. Return on investment B. Expenses C. Allocation of net income D. Reduction of capital
D. the authority to transact any of the partnership's business operations
Transferable interest of a partner includes all of the following except: A. the partner's share of the profits and losses of the partnership B. the right to receive distributions C. the right to receive any liquidating distribution D. the authority to transact any of the partnership's business operations
B. Reward labor and expertise contributions
What is the underlying purpose of the salary component of allocating partnership profits and losses? A. Compensate partners who contribute economic resources to the partnership B. Reward labor and expertise contributions C. Reward for special responsibilities undertaken D. None of the above
D. Any of the three or a combination may be applied
When a new partner joins a partnership by investing assets into the partnership, what method may be used to record the admission of the new partner? A. Revaluation of existing assets B. Application of the bonus method C. Recognition of goodwill D. Any of the three or a combination may be applied
C. Either bonus method or goodwill method
Which method of recording the admission of a new partner into a partnership potentially results in the existing partners' capital accounts changing in value? A. Bonus method B. Goodwill method C. Either bonus method or goodwill method D. Existing partners; capital never change
D. The assignee does not become a partner but has the right to share in future partnership profits and to receive the proper share of partnership assets upon liquidation.
A partner assigned his partnership interest to a third party. Which statement best describes the legal ramifications to the assignee? A. The assignment of the partnership interest does not entitle the assignee to partnership assets upon liquidation. B. The assignment dissolves the partnership. C. The assignee has the right to share in the management of the partnership. D. The assignee does not become a partner but has the right to share in future partnership profits and to receive the proper share of partnership assets upon liquidation.
C. The bonus criteria would not be used
A partnership agreement calls for allocation of profits and losses by salary allocations, a bonus allocation, interest on capital, with any remainder to be allocated by present ratios. If a partnership has a loss to allocate, generally which of the following procedures would be applied? A. Any loss would allocated equally to all partners B. Any salary allocation criteria would not be used C. The bonus criteria would not be used D. The loss would be allocated using the profit and loss ratios, only.
D. Neither 1, 2, 3 or 4
Which of the following will not result in the dissolution of a partnership? 1.Partners are incompatible and choose to cease operations 2.Partners realize that the profit figures have failed to reach projected levels. 3.Retirement of a partner. 4.Death of a partner. A. 1 and 2 only B. 1,2, and 3 C. 1,2, 3 and 4 D. Neither 1, 2, 3 or 4
C. The partnership has not ceased operations
Which of the following is a reason to not revalue partnership assets at the date a new partner is admitted to the partnership? A. There has been a change in ownership B. A new legal entity exists C. The partnership has not ceased operations D. All three are reasons to not revalue partnership assets at the date of a new partner's admission
A. Only cash assets were contributed to the partnership by the new partner
Which of the following is not a criterion for recognizing a bonus to a new partner when the new partner joins the partnership? A. Only cash assets were contributed to the partnership by the new partner B. The existing partners desire to not recognize goodwill on the balance sheet C. The articles of partnership indicate that the bonus method will be used to admit new partners D. The new partner invests less into the partnership that his /her share of total partnership capital after the investment is made
C. The articles of partnership indicate that the bonus method will be used to admit new partners
Which of the following is not a criterion for recognizing a bonus to existing partners when a new partner joins the partnership? A. Only cash assets were contributed to the partnership by the new partner B. The existing partners desire to not recognize goodwill on the balance sheet C. The articles of partnership indicate that the bonus method will be used to admit new partners D. The new partner invests more into the partnership that his/her share of total partnership capital after the investment is made
B. Partnerships can more easily generate significant amounts of capital
Which of the following is not a reason for the popularity of partnerships as a legal form for business? A. Partnerships may be formed merely by an oral agreement B. Partnerships can more easily generate significant amounts of capital C. Partnerships avoid the double taxation of income that is found in corporations D. In some cases, losses may be used to offset gains for tax purposes
C. The new partner must be allocated some amount of profit and loss
Which of the following must be true when a new partner acquires an ownership interest directly from an existing partner? A. Capital must be assigned to the new partner B. The new partner's profit and loss allocation must be proportionate to the capital account balance C. The new partner must be allocated some amount of profit and loss D. The existing partners must provide a list of all the partnership's outstanding liabilities to the new partner
C. Existing partners must approve the admission of the new partner into the partnership
Which of the following must occur for a new partner to enter the partnership by acquiring an ownership interest directly from an existing partner? A. Existing partners must know the amount the new partner is paying for the ownership interest B. The new partner must acquire all of the current partner's ownership interest C. Existing partners must approve the admission of the new partner into the partnership D. The new partner must live in the same state as the other partners
D. withdrawal of a partner from a partnership
Which of the following results in dissolution of a partnership? A. contribution of additional assets to the partnership by an existing partner B. receipt of a draw by an existing partner C. winding up of the partnership and the distribution of remaining assets to the partners D. withdrawal of a partner from a partnership
D. The three partners will have equal capital account balances when the transaction is completed
Which of the following statements is false with regard to the goodwill recognized for a new partner entering a partnership? A. The new partner's capital account balance will exceed the amount invested B. The existing partners' capital accounts will remain unchanged C. The amount invested by the new partner will be less than his/her proportion of the partnership's book value before goodwill is recognized D. The three partners will have equal capital account balances when the transaction is completed
A. Partner salaries may be used to allocate profits and losses: they are not considered expenses of the partnership
Which of the following statements is true concerning the treatment of salaries in partnership accounting? A. Partner salaries may be used to allocate profits and losses: they are not considered expenses of the partnership B. Partner salaries are equal to the annual partner drawing C. The salary of a partner is treated in the same manner as salaries of corporate employees D. Partner salaries are directly closed to the capital account
C. The total value of the new partner's contribution to the partnership is greater than the value of the identifiable net assets contributed
Which of the following statements presents a reason that goodwill may be recorded with regard to a new partner at the date of that partner's admission to the partnership? A. The existing partnership is worth more than the appraised value of the tangible net assets B. The new partner has a strong desire to become a member of the partnership C. The total value of the new partner's contribution to the partnership is greater than the value of the identifiable net assets contributed D. The new partner's residual interest in profits and losses is greater than 30 percent