Advanced Chapter 13

B. II only

When a new partner is admitted into a partnership and the new partner receives a capital credit greater than the tangible assets contributed, which of the following explains the difference? I. The old partners' goodwill is being recognized. II. The new partner's goodwill is being recognized. A. I only B. II only C. Either I or II D. Both I and II

B. II only

When a new partner is admitted into a partnership and the old partners' goodwill is recognized, the goodwill is allocated to: I. all the partners in their profit-and-loss-sharing ratio. II. the old partners in their profit and loss sharing ratio. A. I only B. II only C. Either I or II D. Neither I nor II

C. Both a and b.

Which of the following best describes the accounting for changes in partnership ownership? A. A common practice when admitting a new partner to a partnership is to revalue the partnership net assets to fair value. B. The purchase of a partnership interest in a transaction between old and new partners requires a journal entry in the partnership records. C. Both a and b. D. Neither a nor b

A. The assets of the partnership must be converted to cash used to pay the obligations to creditors, including partners who are creditors, and any remaining cash must be distributed to the partners in accordance with the relative proportions of their Capital Accounts.

Which of the following does not accurately describe the process relating to the dissolution of a partnership? A. The assets of the partnership must be converted to cash used to pay the obligations to creditors, including partners who are creditors, and any remaining cash must be distributed to the partners in accordance with the relative proportions of their Capital Accounts. B. Profits (losses) that result from the liquidation of the partnership assets must be credited (charged) to the partners' Capital Accounts. C. If a partner's Capital Account becomes negative as a result of the sales of assets, the partner must make a cash contribution to the partnership in an amount sufficient to bring the Capital Account to a zero balance. D. If a partner fails to contribute the full amount required, all of the other partners shall contribute (in their profit-sharing ratios) the additional amount necessary to satisfy the partnership obligations. In the event of such contribution, the partners shall have the right to sue the partner with the unfunded negative Capital Account for the amount owed to the partnership

C. From a tax standpoint, the taxing authorities view the partnership as a taxable entity and tax its profit like other forms of organization.

Which of the following does not describe the partnership form of organization? A. Partnerships allow numerous individuals to combine their efforts for a variety of business purposes in an organization that can last indefinitely. B. Partnerships can survive the admission of new partners and the disassociation of existing partners as they retire. C. From a tax standpoint, the taxing authorities view the partnership as a taxable entity and tax its profit like other forms of organization. D. Partnerships pass through liabilities to the partners.

D. The differential in value resulting from the revaluation of assets is recognized as a gain or loss in the partnership income statement.

Which of the following is not true about the accounting for changes in partnership ownership involving revaluation of net assets? A. If net assets are measured at fair value, the partners have the best possible chance of allocating partner Capital Accounts in a fair and unbiased manner. B. When partnership net assets are revalued in anticipation of a realignment transaction, the resulting gains and losses accrue only to the partners who have an ownership interest in the entity during the period in which the net assets changed in value. C. The gains and losses that result from pre- realignment revaluation are allocated to the existing partners' Capital Accounts in the revaluation profit-and-loss-sharing ratio designated in the Partnership Agreement. D. The differential in value resulting from the revaluation of assets is recognized as a gain or loss in the partnership income statement.

C. The journal entry to record the payment of interest on Capital Account balances involves a debit to interest expense.

Which of the following statements about interest on the Capital Account is false? A. Interest paid on Capital Account balances is not treated like interest on debt for accounting purposes. B. Interest paid on Capital Account balances is treated as a form of profit allocation like salary. C. The journal entry to record the payment of interest on Capital Account balances involves a debit to interest expense. D. The interest rate is specified in the Partnership Agreement.

D. All of the above are true.

Which of the following statements is false regarding the allocation of profit to partners? A. The allocation of remaining profit to the partners is based on a sharing ratio that is described in the Partnership Agreement. B. The Partnership Agreement can provide for different sharing ratios in the event of a profit or a loss. C. The profit sharing ratio does not have to conform to the partners' respective Capital Account balances. D. All of the above are true.

D. All of the above are true.

Which of the following statements is false? A. Partners may contribute additional capital to the partnership in the form of cash and other assets. B. Withdrawals of cash by the partners are called "drawings." C. The partnership income statement includes revenues and expenses but not salary paid to partners. D. All of the above are true.

B. Cash paid to partners is called a dividend.

Which of the following statements is false? A. The partner Capital Account is updated in a manner that is similar to the way in which we update Retained Earnings for a corporation. B. Cash paid to partners is called a dividend. C. Profit and loss can be allocated to individual partners in a ratio that is different form the relative proportion of their capital accounts. D. Cash paid to a partner for services performed for the partnership is not recognized as an expense.