Advanced Acct. Test 4

What is the equity method of accounting often referred as?

"one-line consolidation"

Byrd and Katt formed a partnership and agreed to divide initial capital equally, even though Bryn contributed $200,000 and Katt contributed $168,000 in identifiable assets. Under the bonus approach to adjust the capital accounts, Katt's unidentifiable asset should be debited for:

$0

ASC 810 notes that consolidated statements are also required if an entity has:

(1) power to direct the activities of a variable interest entity that most significantly impacts the entity's economic performance (2) obligation to absorb losses of the entity that could potentially be significant to the VIE or the right to receive benefits from the entity that could potentially be significant to the VIE

Limited Liability Company

1 or more owners; limited liability; does not pay income tax unless it elects to file as a C or S corp.

S Corporation

1 to 100 owners; limited liability; does not pay income tax

Why do companies form joint ventures? 1) one company may have the _________ that the other company lacks 2) allows ________ into new markets 3) allows for sharing of ______ & _______ 4) provides a means of ______ balance sheet financing 5) _________ requirements may be larger than the company can provide

1) expertise 2) entry 3) risks & rewards 4) off 5) capital

During the current year, Young and Zinc maintained average capital balance in their partnership of $160,000 and $100,000, respectively. The partners receive 10% interest on average capital balances, and residual profit or loss is divided equally. Partnership profit before interest was $4,000. By what amount should Zinc's capital balance change for the year?

1,000 Decrease

Beck, the active partner in Beck & Cris, receives an annual bonus of 25% of partnership net income after deducting the bonus. For the year ended December 31, partnership net income before the bonus amounted to $300,000. Beck's bonus for the year should be?

60,000 Explanation: Bonus= 300,000 X .25 Bonus= 75,000 Beck's Bonus= 75,000/1.25

Proprietorship

A business owned by one person; unlimited liability; does not pay income tax

In the Adel-Brick partnership, Adel and Brick had a capital ratio of 3:1 and a profit and loss ratio of 2:1, respectively. The bonus method was used to record Colter's admittance as a new partner. What ratio would be used to allocate, to Adel and Brick, the excess of Colter's contribution over the amount credited to Colter's capital account.

Adel and Brick's old profit and loss ratio

The capital balance for Matt is $110,000 and for Megan is $40,000. These two partners share profits and losses 70 percent (Matt) and 30 percent (Megan). Zach invests $50,000 cash into the partnership for a 30 percent ownership. The bonus method will be used. What is Matt's capital balance after Zach' investment? A) $103,000 B) $105,000 C) $107,000 D) $113,000 E) $117,000

A) $103,000

Dunn and Grey are partners with capital account balances of $30,000 and $50,000, respectively. They agree to admit Zorn as a partner with a one-fourth interest in capital and profits, for an investment of $70,000, after revaluing the assets of Dunn and Grey. The partners agreed to use the goodwill method. Goodwill would be recorded for A) $130,000 B) $100,000 C) $50,000 D) $20,000 E) $0

A) $130,000

The liability of LLC members most closely resembles the liability of: A) Owners of a corporation B) Partner in a partnership C) Owner of a proprietorship D) General partner in a limited partnership E) Only B & D above

A) Owners of a corporation

Partnership capital and drawing accounts are similar to the corporate: A) Paid-in capital, retained earnings, and dividends accounts B) Retained earnings account C) Paid-in capital and retained earnings D) Preferred and common stock accounts

A) Paid-in capital, retained earnings, and dividends accounts

What is securitization?

Bundling of a financial asset, such as receivables, and then selling the related cash flows to third parties as securities

There partnership contract for Carrie and Jean to each receive a salary of $40,000 a year, and the resultant net income or loss was to be divided 80% to Carrie and 20% to Jean. If the partnership income (before deducting for salaries) was $50,000, how much of the net income should Jean receive? A) $50,000 B) $40,000 C) $34,000 D) $25,000 E) $16,000

C) $34,000

Prior to the beginning of liquidation, the liabilities and partners' capital of Dewey, Cheatham & Howe LLP, whose partners shared net income and losses equally, consisted of Liabilities of $70,000; Loan payable to Howe, $28,000; Dewey, Capital, $30,000; Cheatham, Capital, $59,000; and Howe, Capital, $63,000 cash was available for distribution to partners, partner Howe should receive: A) $67,000 B) $51,000 C) $46,000 D) $40,000 E) $19,000

C) $46,000

All identifiable assets contributed to a partnership should be recorded on the partnership's books at ____________, and all liabilities should be recorded at ____________. A) Book value; present value B) Present value; book value C) Fair value; present value D) Replacement cost; market value

C) Fair value; present value

If the LLC does not make an election on how it will be taxed, the default IRS treatment for a multi-member LLC will be to tax the LLC as a: A) C Corporation B) S Corporation C) Partnership if it has two or more members D) Any of the above depending on which will result in the highest tax E) Any of the above depending on which will result in the lowest tax

C) Partnership if it has two or more members

When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill's interest exceeded Mill's capital balance. Under the bonus method, the excess: A) Was recorded as goodwill B) Was recorded as an expense C) Reduced the capital balances of Yale and Lear D) Increased the capital balances of Yale and Lear E) Had no effect on the capital balances of Yale and Lear

C) Reduced the capital balances of Yale and Lear

When a new partner purchases the interest of an existing partner, the capital account of the new partner should be credited for: A) The fair value of the consideration paid to the old partner B) The book value of the consideration given to the old partner C) The balance in the old partner's capital account D) Any of the above are acceptable

C) The balance in the old partner's capital account

In a partnership liquidation proceeding, who if anyone, will be held personally liable for distributing cash to a partner whose capital account later shows a deficit and that is unable to repay such a distribution? A) The remaining partners share equal responsibility B) The partner who received the early distribution C) The partner who gave the other partner the early distribution D) No on will be held personally liable

C) The partner who gave the other partner the early distribution

Abel and Carr formed a partnership and agreed to divide initial capital equally, even though Abel contributed $100,000 and Carr contributed $84,000 in identifiable assets. Under the bonus approach to adjust the capital accounts, Carr's unidentifiable asset should be debited for: A) $46,000 B) $16,000 C) $8,000 D) $0

D) $0

To be considered an independent variable interest entity (VIE), what is the minimum percentage of equity financing that must be provided by independent sources? A) 100% B) 51% C) 50% D) 10% E) 3%

D) 10%

Which of the following accounts is not relevant for a limited liability partnership? A) Income tax expense B) Retained earnings C) Salaries Expense D) Both A & B E) Both B & C

D) Both A & B

Which of the following statements best describes the tax status of a limited liability company? A) A multi-member LLC is treated as an association taxable as a corporation B) A single-member LLC is treated in the same manner as an S corporation with a sole shareholder C) When one member of an LLC with two members dies, the LLC automatically terminates D) If a single-member LLC admits a new member, the entity is treated as a partnership for tax purposes

D) If a single-member LLC admits a new member, the entity is treated as a partnership for tax purposes

When Auburn retired from the partnership of Auburn, Brown, and Yale, the final settlement of Auburn's interest was less than Auburn's capital balance. Under the bonus method, the excess: A) Was recorded as goodwill B) Was recorded as an expense C) Reduced the capital balances of Brown and Yale D) Increased the capital balances of Brown and Yale E) Had no effect on the capital balance of Brown and Yale

D) Increased the capital balances of Brown and Yale

Which of the following is a true statement? A) In all states, a person must have completed 150 hours before taking the CPA exam. B) In order to become a CMA, a person must have 150 semester hours of college education C) In order to become a CIA, a person must have 150 semester hours of college education D) The CPA, CMA, and CIA exams are much more academic than practice oriented

D) The CPA, CMA, and CIA exams are much more academic than practice oriented

Partnership capital and drawing accounts are similar to corporate

Paid-in capital, retained earnings, and dividends accounts

The owners of partnerships are called __________ whereas the owners of a LLC are called _________. Hence, the owners' equity is called __________ capital.

Partners; Members; Members

The Flat and Iron partnership agreement provides for Flat to receive a 20% bonus on profits before the bonus. Remaining profits and losses are divided between Flat and Iron in the ratio of 2 to 3, respectively. Which partner has a greater advantage when the partnership has a profit and when it has a loss?

Profit: Flat Loss: Flat

When Mill retired from the partnership of Mill, Yale, and Lear, the final settlement of Mill's interest exceeded Mill's capital balance. Under the bonus method, the excess

Reduced the capital balances of Yale and Lear

Which of the following is the most often filed tax return by businesses? Which is the 2nd most?

S Corporations; Partnerships

C Corporation

at least 1 or more owners'; limited liability; pay income tax

General Partnership

at least 2 or more owners; unlimited liability; does not pay income tax

To calculate the partner's initial basis for tax purposes, however, one uses the partner's basis, i.e., probably the partner's ________.

cost

What is a variable interest entity (VIE)?

designed so that the party receiving the most benefit and/or incurring the greatest risk are not the equity holders. most are established for legitimate business purpose and were once called special-purpose entity

In recording the initial investment of partners for GAAP, we initially recorded the assets and liabilities at ____________ ____________. Recording the assets initially at fair value rather than at cost is important to remember for purposes of GAAP.

fair value

The Uniform Partnership Act defines a partnership as: A) Any association of two or more persons or entities B) An association of two or more persons to carry on, as co-owners, a business for a profit C) A separate legal entity for most legal purposes D) An entity created by following statutory requirements

B) An association of two or more persons to carry on, as co-owners, a business for a profit

Which of the following assumes that unidentifiable assets contributed to the partnership constitute a partnership asset with a measurable cost? A) Bonus method B) Goodwill method C) Cost method D) All of the above

B) Goodwill method

If a partnership agreement specifies how profits are to be divided, but is silent on the distribution of the losses, then losses must be shared: A) Equally B) In the same manner profits are shared C) Based on the ration of the capital balances D) Any of the above is acceptable under the Uniform Partnership Act

B) In the same manner profits are shared

A variable interest entity (VIE) cannot be a: A) Corporation B) Limited liability company C) Partnership D) Trust E) A VIE could be any of the above

E) A VIE could be any of the above

Depending on the election made by the LLC, an LLC may be taxed as a: A) C Corporation B) S Corporation C) Partnership if it has two or more members D) Proprietorship; if it has only one member E) Any of the above

E) Any of the above

If the partnership agreement does not specify how income is to be allocated, profits should be allocated

Equally

What method does ASC 323-30 require for joint ventures if the investor has the ability to exercise significant?

Equity Method

When property other than cash is invested in a partnership, at what amount should the noncash property be credited to the contributing partner's capital account?

Fair value at the date of contribution

When should consolidated financial statements be prepared?

If the company owns more than 50% of the voting shares/stock

The goodwill and bonus methods are two means of adjusting for differences between the net book value and fair value of partnerships when new partners are admitted. Which of the following statements about these methods are true?

The bonus method does not revalue assets to market values

What can a variable interest entity (VIE) be?

partnership trust joint venture corporation

The tax code in the United States can differ significantly from GAAP. As noted earlier, a partnership is a non-tax paying entity (a.k.a. a _________-___________ entity). The specific tax rules are covered in the ____________ _____________.

pass through; tax courses

Joint Venture

traditionally used to describe a general partnership of limited duration and with limited projects or other activities