Accounting 401 Final Exam

Bill, Page, Larry, and Scott have decided to terminate their partnership. The partnership's balance sheet at the time they decide to wind up is as follows: During the winding up of the partnership, the other assets are sold for $150,000 and the accounts payable are paid. Page and Larry are personally solvent, but Bill and Scott are personally insolvent. The partners share profits and losses in the ratio of 4:2:1:3. 25. Based on the preceding information, what amount will be paid out to Scott upon liquidation of the partnership? A. $0 B. $2,500 C. $25,000 D. $65,000

B. $2,500

43. The terms of a partnership agreement provide that one of the partners is to receive a salary allowance of $30,000, plus a bonus of 20 percent of income after deduction of the bonus and the salary allowance. If income is $150,000, the bonus should be: A. $18,000 B. $20,000 C. $24,000 D. $30,000

B. $20,000

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others. 33. Refer to the information provided above. Allen and Daniel agree that some of the inventory is obsolete. The inventory account is decreased before David is admitted. David invests $40,000 for a one-fifth interest. What is the amount of inventory written down? A. $4,000 B. $20,000 C. $15,000 D. $10,000

B. $20,000

Partners Dennis and Lilly have decided to liquidate their business. The following information is available: Dennis and Lilly share profits and losses in a 3:2 ratio. During the first month of liquidation, half the inventory is sold for $60,000, and $60,000 of the accounts payable is paid. During the second month, the rest of the inventory is sold for $45,000, and the remaining accounts payable are paid. Cash is distributed at the end of each month, and the liquidation is completed at the end of the second month. 9. Refer to the information provided above. Using a safe payments schedule, how much cash will be distributed to Dennis at the end of the second month? A. $18,000 B. $27,000 C. $36,000 D. $60,000

B. $27,000

The following condensed balance sheet is presented for the partnership of D, E, and F who share profits and losses in the ratio of 5:3:2, respectively: The partners agreed to liquidate the partnership after selling the other assets. 39. Refer to the above information. If the other assets are sold for $280,000, how much should F receive upon liquidation? A. $44,000 B. $50,000 C. $76,000 D. $90,000

B. $50,000

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others. 34. Refer to the information provided above. Allen and Daniel agree that some of the inventory is obsolete. The inventory account is decreased before David is admitted. David invests $40,000 for a one-fifth interest. What are the capital balances of Allen and Daniel after David is admitted into the partnership? A. Allen: $140,000 Daniel: $40,000 B. Allen: $125,000 Daniel: $35,000 C. Allen: $120,000 Daniel: $36,000 D. Allen: $137,000 Daniel: $39,000

B. Allen: $125,000 Daniel: $35,000

A= The amount of tangible assets contributed by the new partner into the partnership B= The amount of capital credited to the new partner C= Total capital of the partnership before the admission of a new partner D= Total capital of the partnership after the admission of a new partner 18. Refer to the above information. Which statement below is correct if goodwill of the old partners is recognized upon the contribution of assets into the partnership by a new partner? A. B = A and D < C + A B. B = A and D > C + A C. B < A and D = C + A D. B > A and D < C + A

B. B=A and D>C+A

A= The amount of tangible assets contributed by the new partner into the partnership B= The amount of capital credited to the new partner C= Total capital of the partnership before the admission of a new partner D= Total capital of the partnership after the admission of a new partner 16. Refer to the above information. Which statement below is correct if a new partner receives a bonus upon contributing assets into the partnership? A. B < A and D = C - A B. B > A and D = C + A C. A = B and A = D + C D. B > A and C = D + A

B. B>A and D=C+A

A= The amount of tangible assets contributed by the new partner into the partnership B= The amount of capital credited to the new partner C= Total capital of the partnership before the admission of a new partner D= Total capital of the partnership after the admission of a new partner 19. Refer to the above information. Which statement below is correct if a new partner purchases an interest in capital directly from the old partners? A. C < D B. C = D C. C = D and B = A D. C < D and B = A

B. C=D

10. The DEF partnership reported net income of $130,000 for the year ended December 31, 2008. According to the partnership agreement, partnership profits and losses are to be distributed as follows: How should partnership net income for 2008 be allocated to D, E, and F? A. D:$78,000 E:$39,000 F:$13,000 B. D: $72,200 E:$37,100 F:$20,700 C. D:$52,500 E:$75,000 F:$22,500 D. D:$42,500 E:$42,500 F:$65,000

B. D: $72,200 E: $37,100 F: $20,700

16. The BIG Partnership has decided to liquidate at December 31, 2008. The capital and loan balances of the partners at December 31, 2008, are provided below: If you were to calculate the Loss Absorption Power for each partner, how would the partners rank (from highest to lowest LAP)? A. B, I, G B. I, B, G C. B, G, I D. G, I, B

B. I, B, G

19. (p. Appendix: A) On a partner's personal statement of financial condition, how should liabilities be valued? I. Present value II. Lower of present value or cash settlement amount A. I B. II C. Both I and II D. Neither I nor II

B. II

20. (p. Appendix: A) On a partner's personal statement of financial condition, assets and liabilities are presented: I. As current and noncurrent. II. In order of liquidity and maturity. A. I B. II C. Both I and II D. Neither I nor II

B. II

18. In the calculation of the loss absorption power for a partner, a partner's loan balance (an amount that is owed by the partnership) should be: I. Added to the partner's capital balance. II. Paid to the partner as a creditor of the partnership. A. I only B. II only C. Both I and II D. Neither I nor II

B. II only

26. When the old partners receive a bonus upon admission of a new partner into a partnership, the bonus is allocated to: I. all the partners in their profit and loss sharing ratio. II. the existing partners in their profit and loss sharing ratio. A. I only B. II only C. Either I or II D. Neither I nor II

B. II only

32. The computation of a safe installment payment for the XYZ partnership resulted in only partner Z receiving cash. Which of the following statements is correct? I. Partner Z lent the partnership cash, and the partnership had to pay back the loan to Z before distributing cash to X and Y. II. After assuming all noncash assets were potentially worthless and that assumed capital deficits created in X's and Y's capital balances were losses to be allocated to Z; Z's capital balance was the only capital balance left with a credit. A. I only B. II only C. Either I or II D. Neither I nor II

B. II only

14. RD formed a partnership on February 10, 2009. R contributed cash of $150,000, while D contributed inventory with a fair value of $120,000. Due to R's expertise in selling, D agreed that R should have 60 percent of the total capital of the partnership. R and D agreed to recognize goodwill. What is the total capital of the RD partnership and the capital balance of R after the goodwill is recognized? A. Total Capital: $450,000 R, Capital: $270,000 B. Total Capital: $330,000 R, Capital: $198,000 C. Total Capital: $300,000 R, Capital: $180,000 D. Total Capital: $270,000 R, Capital: $162,000

C. Total Capital: $300,000 R, Capital: $180,000

1. The capital balances, prior to the liquidation of the XYZ partnership, were as follows: X, Capital $130,000 Y, Capital $130,000 Z, Capital $100,000 X, Y, and Z share profits and losses in the ratio of 5:3:2. As a result of a loan, the partnership owes Y $80,000. Using the information above, which partner has the highest Loss Absorption Power (LAP) prior to liquidation? A. X B. Y C. Z D. Both X and Y

C. Z

42. If A is the total capital of a partnership before the admission of a new partner, B is the total capital of the partnership after the admission of the new partner, C is the amount of the new partner's investment, and D is the amount of capital credited to the new partner, then there is: A. goodwill to the new partner if B > (A + C) and D < C. B. goodwill to the old partners if B = A + C and D > C. C. a bonus to the new partner if B = A + C and D > C. D. neither bonus nor goodwill if B > (A + C) and D > C.

C. a bonus to the new partner if B=A+C and D>C

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others. 32. Refer to the information provided above. Assume that David invests $50,000 for a one-fourth interest. Goodwill is to be recorded. The journal to record David's admission into the partnership will include: A. a credit to cash for $50,000. B. a debit to goodwill for $7,500. C. a credit to David, Capital for $60,000. D. a credit to David, Capital for $50,000.

C. a credit to David, Capital for $60,000

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others. 38. Refer to the information provided above. David invests $40,000 for a one-fifth interest in the total capital of $220,000. What are the capital balances of Allen and Daniel after David is admitted into the partnership? A. $160,000 $60,000 B. $136,000 $36,000 C. $140,000 $40,000 D. $137,000 $39,000

D. $137,000 $39,000

In the RST partnership, Ron's capital is $80,000, Stella's is $75,000, and Tiffany's is $50,000. They share income in a 3:2:1 ratio, respectively. Tiffany is retiring from the partnership. Each of the following questions is independent of the others. 30. Refer to the above information. Tiffany is paid $56,000, and all implied goodwill is recorded. What is the total amount of goodwill recorded? A. $0 B. $6,000 C. $30,000 D. $36,000

D. $36,000

Partners Dennis and Lilly have decided to liquidate their business. The following information is available: Dennis and Lilly share profits and losses in a 3:2 ratio. During the first month of liquidation, half the inventory is sold for $60,000, and $60,000 of the accounts payable is paid. During the second month, the rest of the inventory is sold for $45,000, and the remaining accounts payable are paid. Cash is distributed at the end of each month, and the liquidation is completed at the end of the second month. 7. Refer to the information provided above. Using a safe payments schedule, how much cash will be distributed to Dennis at the end of the first month? A. $64,000 B. $60,000 C. $24,000 D. $36,000

D. $36,000

The trial balance of WM Partnership is as follows: Wilfred and Mike decides to incorporate their partnership. The partnership's books will be closed, and new books will be used for W & M Corporation. The following additional information is available: 1. The estimated fair values of the assets follow: 2. All assets and liabilities are transferred to the corporation. 3. The common stock is $10 par. Wilfred and Mike receive a total of 10,000 shares. 4. The partners share profits and losses in the ratio 7:3. 37. Based on the preceding information, the journal entry on the partnership's books to record distribution of stock to prior partners will include a debit to Mike, Capital for: A. $38,010. B. $31,500. C. $42,000. D. $44,300.

D. $44,300

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others. 31. Refer to the information provided above. What amount will David have to invest to give him one-fifth percent interest in the capital of the partnership if no goodwill or bonus is recorded? A. $60,000 B. $36,000 C. $50,000 D. $45,000

D. $45,000

44. The partnership of X and Y shares profits and losses in the ratio of 60 percent to X and 40 percent to Y. For the year 2008, partnership net income was double X's withdrawals. Assume X's beginning capital balance was $80,000, and ending capital balance (after closing) was $140,000. Partnership net income for the year was: A. $120,000. B. $300,000. C. $500,000. D. $600,000.

D. $600,000

2. The balance sheet given below is presented for the partnership of Janet, Anton, and Millet: Cash $60,000 Other Assets 150,000 Total $210,000 Liabilities $80,000 Janet, Cap $80,000 Anton, Cap $30,000 Millet, Cap $20,000 Total $210,000 The partners share profits and losses in the ratio of 5:3:2, respectively. The partners agreed to dissolve the partnership after selling the other assets for $50,000. On dissolution of the partnership, Janet should receive: A. $0. B. $80,000. C. $10,000. D. $30,000.

D. 30,000

A= The amount of tangible assets contributed by the new partner into the partnership B= The amount of capital credited to the new partner C= Total capital of the partnership before the admission of a new partner D= Total capital of the partnership after the admission of a new partner 20. Refer to the above information. Which statement below is correct if a new partner's goodwill is recognized upon contributing assets into the partnership? A. B = A and D > C + A B. B < A and D < C + A C. B > A and D = C + A D. B > A and D > C + A

D. B>A and D>C+A

22. (p. Appendix: A) On a partner's personal statement of financial condition, how are assets valued? A. Historical cost B. Book value C. Discounted value D. Estimated current value

D. Estimated Current Value

9. Which of the following accounts could be found in the PQ partnership's general ledger? I. Due from P II. P, Drawing III. Loan Payable to Q A. I, II B. I, III C. II, III D. I, II, and III

D. I, II, and III

15. A joint venture may be organized as a: I. Partnership. II. Corporation. III. Undivided interest. A. I only B. II only C. I or III only D. I, II, or III

D. I, II, or III

8. Which of the following accounts could be found in the general ledger of a partnership? A. Income Tax Expense: No; Interest Expense on Partner Loans: No B. Income Tax Expense: Yes; Interest Expense on Partner Loans: No C. Income Tax Expense: Yes; Interest Expense on Partner Loans: Yes D. Income Tax Expense: No; Interest Expense on Partner Loans: Yes

D. Income Tax Expense: No; Interest Expense on Partner Loans: Yes

Bill, Page, Larry, and Scott have decided to terminate their partnership. The partnership's balance sheet at the time they decide to wind up is as follows: During the winding up of the partnership, the other assets are sold for $150,000 and the accounts payable are paid. Page and Larry are personally solvent, but Bill and Scott are personally insolvent. The partners share profits and losses in the ratio of 3:2:1:4. 29. Based on the preceding information, what amounts will be distributed to Page and Larry upon liquidation of the partnership? A. Option A B. Option B C. Option C D. Option D

D. Option D

Partners Dennis and Lilly have decided to liquidate their business. The following information is available: Dennis and Lilly share profits and losses in a 3:2 ratio. During the first month of liquidation, half the inventory is sold for $60,000, and $60,000 of the accounts payable is paid. During the second month, the rest of the inventory is sold for $45,000, and the remaining accounts payable are paid. Cash is distributed at the end of each month, and the liquidation is completed at the end of the second month. 11. Refer to the information provided. Assume instead that the remaining inventory was sold for $10,000 in the second month. What payments will be made to Dennis and Lilly at the end of the second month? A. Option A B. Option B C. Option C D. Option D

D. Option D

46. 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.

D. the authority to transact any of the partnership's business operations

Tom, Dick, and Harry are partners in an equipment leasing business that has not been able to generate the type of revenue expected by the partners. They share profits and losses in a ratio of 5:3:2. They have decided to liquidate the business and have sold all the assets except for one piece of heavy machinery. All partnership liabilities have been settled and all the partners are personally insolvent. The machinery has a book value of $85,000, and the partners have capital account balances as follows: Each of the following are independent cases. 4. Refer to the information given above. What amount of cash will each partner receive as a liquidating distribution if the machinery is sold for 65,000 dollars? A. Option A B. Option B C. Option C D. Option D

B. Option B

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others. 37. Refer to the information provided above. David invests $40,000 for a one-fifth interest in the total capital of $220,000. The journal to record David's admission into the partnership will include: A. a credit to Cash for $40,000. B. a debit to Allen, Capital for $3,000. C. a credit to David, Capital for $40,000. D. a credit to Daniel, Capital for $1,000.

B. a debit to Allen, Capital for $3,000

3. On December 1, 2009, the partners of Tim, Williams, and Levin, who share profits and losses in the ratio of 4:4:2, decided to liquidate their partnership. On this date the partnership condensed balance sheet was as follows: On December 11, 2009, the first cash sale of other assets with a carrying amount of $200,000 realized $140,000. Safe installment payments to the partners were made on the same date. How much cash should be distributed to each partner? A. Option A B. Option B C. Option C D. Option D

C. Option C

Bill, Page, Larry, and Scott have decided to terminate their partnership. The partnership's balance sheet at the time they decide to wind up is as follows: During the winding up of the partnership, the other assets are sold for $150,000 and the accounts payable are paid. Page and Larry are personally solvent, but Bill and Scott are personally insolvent. The partners share profits and losses in the ratio of 4:2:1:3. 26. Based on the preceding information, what amount will be distributed to Page and Larry upon liquidation of the partnership? A. Option A B. Option B C. Option C D. Option D

C. Option C

Tom, Dick, and Harry are partners in an equipment leasing business that has not been able to generate the type of revenue expected by the partners. They share profits and losses in a ratio of 5:3:2. They have decided to liquidate the business and have sold all the assets except for one piece of heavy machinery. All partnership liabilities have been settled and all the partners are personally insolvent. The machinery has a book value of $85,000, and the partners have capital account balances as follows: Each of the following are independent cases. 5. Refer to the information given above. What amount of cash will each partner receive as a liquidating distribution if the machinery is sold for 33,000 dollars? A. Option A B. Option B C. Option C D. Option D

C. Option C

17. Partner A has a smaller capital balance than Partner L. Partner A, however, has a higher profit-and-loss-sharing percentage than Partner L. The LA partnership has decided to liquidate. As a result of the information given, A. Partner L will have a smaller loss absorption power than A. B. Partner L will receive cash only after A has received cash. C. Partner A will have a smaller loss absorption power than L. D. Partner A will never receive any cash from partnership liquidation.

C. Parter A will have a smaller loss absorption power than L

The APB partnership agreement specifies that partnership net income be allocated as follows: Average capital balances for the current year were $50,000 for A, $30,000 for P, and $20,000 for B. 13. Refer to the information given. Assuming a current year net income of $50,000, what amount should be allocated to each partner? A. Partner A: $20,000 Partner P: $20,000 Partner B: $10,000 B. Partner A: $16,000 Partner P: $16,000 Partner B: $8,000 C. Partner A: $19,000 Partner P: ($3,000) Partner B: $34,000 D. Partner A: $17,000 Partner P: $0 Partner B: $33,000

C. Partner A: $19,000 Partner P: ($3,000) Partner B: $34,000

In the RST partnership, Ron's capital is $80,000, Stella's is $75,000, and Tiffany's is $50,000. They share income in a 3:2:1 ratio, respectively. Tiffany is retiring from the partnership. Each of the following questions is independent of the others. 28. Refer to the above information. Tiffany is paid $60,000, and no goodwill is recorded. In the journal entry to record Tiffany's withdrawal: A. Tiffany, Capital will be credited for $60,000. B. Ron, Capital will be debited for $5,000. C. Stella, Capital will be debited for $4,000. D. Cash will be debited for $60,000.

C. Stella, Capital will be debited for $4,000

Bill, Page, Larry, and Scott have decided to terminate their partnership. The partnership's balance sheet at the time they decide to wind up is as follows: During the winding up of the partnership, the other assets are sold for $150,000 and the accounts payable are paid. Page and Larry are personally solvent, but Bill and Scott are personally insolvent. The partners share profits and losses in the ratio of 3:2:1:4. 27. Based on the preceding information, what amount will be paid out to Bill upon liquidation of the partnership? A. $0 B. $5,000 C. $25,000 D. $2,500

A. $0

Bill, Page, Larry, and Scott have decided to terminate their partnership. The partnership's balance sheet at the time they decide to wind up is as follows: During the winding up of the partnership, the other assets are sold for $150,000 and the accounts payable are paid. Page and Larry are personally solvent, but Bill and Scott are personally insolvent. The partners share profits and losses in the ratio of 3:2:1:4. 28. Based on the preceding information, what amount will be paid out to Scott upon liquidation of the partnership? A. $0 B. $2,500 C. $5,000 D. $6,429

A. $0

21. (p. Appendix: A) The personal financial statements of a partner include which of the following? I. Statement of financial condition. II. Statement of changes in net worth. III. Statement of cash flows. A. I and II B. I and III C. II and III D. I, II, and III

A. I and II

Jones and Smith formed a partnership with each partner contributing the following items: Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed by the Jones and Smith partnership. 5. Refer to the above information. What is each partner's tax basis in the Jones and Smith partnership? A. Jones: $350,000 Smith: $270,000 B. Jones: $260,000 Smith: $180,000 C. Jones: $360,000 Smith: $260,000 D. Jones: $500,000 Smith: $300,000

A. Jones: $350,000 Smith: $270,000

Tom, Dick, and Harry are partners in an equipment leasing business that has not been able to generate the type of revenue expected by the partners. They share profits and losses in a ratio of 5:3:2. They have decided to liquidate the business and have sold all the assets except for one piece of heavy machinery. All partnership liabilities have been settled and all the partners are personally insolvent. The machinery has a book value of $85,000, and the partners have capital account balances as follows: Each of the following are independent cases. 6. Refer to the information given above. What amount of cash will each partner receive as a liquidating distribution if the machinery is sold for 21,100 dollars? A. Option A B. Option B C. Option C D. Option D

A. Option A

The trial balance of WM Partnership is as follows: Wilfred and Mike decides to incorporate their partnership. The partnership's books will be closed, and new books will be used for W & M Corporation. The following additional information is available: 1. The estimated fair values of the assets follow: 2. All assets and liabilities are transferred to the corporation. 3. The common stock is $10 par. Wilfred and Mike receive a total of 10,000 shares. 4. The partners share profits and losses in the ratio 7:3. 36. Based on the preceding information, the journal entry on the partnership's books to record distribution of stock to prior partners will include a debit to Wilfred, Capital for: A. $140,000. B. $91,700. C. $86,700. D. $126,700.

C. $86,700

The trial balance of WM Partnership is as follows: Wilfred and Mike decides to incorporate their partnership. The partnership's books will be closed, and new books will be used for W & M Corporation. The following additional information is available: 1. The estimated fair values of the assets follow: 2. All assets and liabilities are transferred to the corporation. 3. The common stock is $10 par. Wilfred and Mike receive a total of 10,000 shares. 4. The partners share profits and losses in the ratio 7:3. 35. Based on the preceding information, the journal entry on the partnership's books to record the Investment in W&M Corporation Stock will be debited for: A. $181,000 B. $131,000 C. $200,000 D. $150,000

B. $131,000

7. Griffin and Rhodes formed a partnership on January 1, 2009. Griffin contributed cash of $120,000 and Rhodes contributed land with a fair value of $160,000. The partnership assumed the mortgage on the land which amounted to $40,000 on January 1. Rhodes originally paid $90,000 for the land. On July 31, 2009, the partnership sold the land for $190,000. Assuming Griffin and Rhodes share profits and losses equally, how much of the gain from sale of land should be credited to Griffin for financial accounting purposes? A. $0 B. $15,000 C. $35,000 D. $45,000

B. $15,000

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others. 36. Refer to the information provided above. David directly purchases a one-fifth interest by paying Allen $34,000 and Daniel $10,000. The land account is increased before David is admitted. What are the capital balances of Allen and Daniel after David is admitted into the partnership? A. Allen: $136,000 Daniel: $34,000 B. Allen: $160,000 Daniel: $60,000 C. Allen: $170,000 Daniel: $50,000 D. Allen: $140,000 Daniel: $40,000

C. Allen: $170,000 Daniel: $50,000

The APB partnership agreement specifies that partnership net income be allocated as follows: Average capital balances for the current year were $50,000 for A, $30,000 for P, and $20,000 for B. 12. Refer to the information given. Assuming a current year net income of $150,000, what amount should be allocated to each partner? A. A: $60,000 P:$60,000 B:$30,000 B. A:$59,000 P:$37,000 B:$54,000 C. A:$24,000 P:$24,000 B:$12,000 D. A:$58,000 P:$38,000 B:$54,000

B. A:$59,000 P:37,000 B:$54,000

22. When a new partner is admitted into a partnership and the new partner receives a capital credit less than the tangible assets contributed, which of the following explains the difference? I. The new partner's goodwill has been recognized. II. The old partners received a bonus from the new partner. A. I only B. II only C. Either I or II D. Neither I nor II

B. II only

23. 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

27. 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

B. II only

40. Which of the following observations is true of an S corporation? A. It elects to be taxed in the same manner as a corporation. B. It does not have the burden of double taxation of corporate income. C. Its shareholders have personal liability for the corporation's obligations. D. Its primary income source should be passive investments.

B. It does not have the burden of double taxation of corporate income.

34. On December 31, 2008, Mr. and Mrs. Williams owned a parcel of land held as an investment. The land was purchased for $40,000 in 2006, and was encumbered by a mortgage with a principal balance of $30,000 at December 31, 2008. On this date the fair value of the land was $75,000. In the Williams' December 31, 2008, personal statement of financial condition, at what amount should the land investment and mortgage payable be reported? A. Option A B. Option B C. Option C D. Option D

B. Option B

The following condensed balance sheet is presented for the partnership of D, E, and F who share profits and losses in the ratio of 5:3:2, respectively: The partners agreed to liquidate the partnership after selling the other assets. 40. Refer to the above information. If the other assets are sold for $80,000, and all partners are personally insolvent, how much should E receive upon liquidation? A. $0 B. $6,000 C. $10,000 D. $20,000

C. $10,000

13. During the liquidation of the FGH partnership, a cash distribution was made to all the partners, who share profits and losses 60 percent, 20 percent, and 20 percent, respectively. Assuming that the cash distribution referred to was made properly, how much would G receive if an additional $60,000 was distributed? A. $60,000 B. $20,000 C. $17,000 D. $12,000

D. $12,000

In the ABC partnership (to which Daniel seeks admittance), the capital balances of Albert, Bert, and Connell, who share income in the ratio of 5:3:2 are: 3. Based on the preceding information, if no goodwill or bonus is recorded, how much should Daniel invest for a 20 percent interest? A. $400,000 B. $200,000 C. $300,000 D. $250,000

D. $250,000

15. In the computation of a partner's Loss Absorption Power (LAP), which of the following statements is incorrect? I. The computation of LAPs for all partners allows cash to be distributed before all partnership assets have been sold and all creditors have been paid. II. The computation of LAPs for all partners indicates the relative strength of each partner's net capital position so that available cash is distributed in respective loss-sharing ratios. A. I B. II C. Both I and II D. Neither I nor II

D. Neither I nor II

45. Shue, a partner in the Financial Brokers Partnership, has a 30 percent share in partnership profits and losses. Shue's capital account had a net decrease of $100,000 during 2008. During 2008, Shue withdrew $240,000 as withdrawals and contributed equipment valued at $50,000 to the partnership. What was the net income of the Financial Brokers Partnership for 2008? A. $633,334 B. $466,666 C. $300,000 D. $190,000

C. $300,000

Bill, Page, Larry, and Scott have decided to terminate their partnership. The partnership's balance sheet at the time they decide to wind up is as follows: During the winding up of the partnership, the other assets are sold for $150,000 and the accounts payable are paid. Page and Larry are personally solvent, but Bill and Scott are personally insolvent. The partners share profits and losses in the ratio of 4:2:1:3. 24. Based on the preceding information, what amount will be paid out to Bill upon liquidation of the partnership? A. $0 B. $25,000 C. $11,667 D. $2,500

A. $0

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others. 39. Refer to the information provided above. David invests $50,000 for a one-fifth interest. What amount of goodwill will be recorded? A. $20,000 B. $4,000 C. $40,000 D. $15,000

A. $20,000

Partners Dennis and Lilly have decided to liquidate their business. The following information is available: Dennis and Lilly share profits and losses in a 3:2 ratio. During the first month of liquidation, half the inventory is sold for $60,000, and $60,000 of the accounts payable is paid. During the second month, the rest of the inventory is sold for $45,000, and the remaining accounts payable are paid. Cash is distributed at the end of each month, and the liquidation is completed at the end of the second month. 8. Refer to the information provided above. Using a safe payments schedule, how much cash will be distributed to Lilly at the end of the first month? A. $24,000 B. $40,000 C. $16,000 D. $64,000

A. $24,000

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others. 35. Refer to the information provided above. David directly purchases a one-fifth interest by paying Allen $34,000 and Daniel $10,000. The land account is increased before David is admitted. By what amount is the land account increased? A. $40,000 B. $10,000 C. $36,000 D. $20,000

A. $40,000

In the RST partnership, Ron's capital is $80,000, Stella's is $75,000, and Tiffany's is $50,000. They share income in a 3:2:1 ratio, respectively. Tiffany is retiring from the partnership. Each of the following questions is independent of the others. 29. Refer to the above information. Tiffany is paid $60,000, and no goodwill is recorded. What is the Ron's capital balance after Tiffany withdraws from the partnership? A. $74,000 B. $71,000 C. $75,000 D. $86,000

A. $74,000

41. The CRT partnership has decided to terminate operations and to liquidate the partnership assets. There are no partner loans, and all partners have positive capital balances. Gains and losses on liquidation and cash distributions to partners should be allocated as follows: A. Option A B. Option B C. Option C D. Option D

A. Gains and Losses: In profit and loss ratio; Cash Distributions: based on capital balances

1. A partnership is a(n): I. accounting entity. II. taxable entity. A. I only B. II only C. Neither I nor II D. Both I and II

A. I only

24. When a new partner is admitted into a partnership and the capital of the old partners decreases, which of the following explains the reason for the decrease? I. Undervalued liabilities were written up to their fair values. II. Undervalued assets were written up to their fair values. A. I only B. II only C. Both I and II D. Neither I nor II

A. I only

30. When a partnership is liquidated on a piecemeal basis and cash has been distributed properly to all partners as noncash assets have been turned into cash, all future cash distributions should be made: I. In the profit and loss ratio. II. According to the balances in the partners' capital accounts. A. I only B. II only C. Both I and II D. Neither I nor II

A. I only

31. When is a partnership considered to be insolvent? I. When the total of all partners' capital accounts results in a debit balance. II. When at least one of the partners is personally insolvent. A. I only B. II only C. Both I and II D. Neither I nor II

A. I only

33. The JKL partnership liquidated its business in 2009. Due to an expected long liquidation period, a cash distribution plan was developed. The initial sale and realization of cash from noncash assets resulted in partner K properly getting $24,000. No other partners received cash along with K. Based upon this information, which of the following statements is correct? I. K's loss absorption power (LAP) was higher than J's LAP and L's LAP. II. K's capital balance was substantially larger than the balances of J and L. A. I only B. II only C. Either I or II D. Neither I nor II

A. I only

11. The JPB partnership reported net income of $160,000 for the year ended December 31, 2008. According to the partnership agreement, partnership profits and losses are to be distributed as follows: How should partnership net income for 2008 be allocated to J, P, and B? A. J: $96,000 P:$48,000 B: $16,000 B. J: $58,000 P:$64,000 B.$38,000 C. J:$60,000 P:$60,000 B:$40,000 D. J:$66,000 P:$68,000 B:$46,000

C. J:$60,000 P:$60,000 B:$40,000

12. In the computation of a partner's Loss Absorption Power (LAP), the individual partner's capital balance and profit-and-loss percentage are used in which of the following ways? A. Option A B. Option B C. Option C D. Option D

C. Option C

Jones and Smith formed a partnership with each partner contributing the following items: Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed by the Jones and Smith partnership. 6. Refer to the above information. What is the balance in each partner's capital account for financial accounting purposes? A. Jones: $350,000 Smith: $270,000 B. Jones: $260,000 Smith: $180,000 C. Jones: $360,000 Smith: $260,000 D. Jones: $500,000 Smith: $300,000

C. Jones: $360,000 Smith: $260,000

Partners Dennis and Lilly have decided to liquidate their business. The following information is available: Dennis and Lilly share profits and losses in a 3:2 ratio. During the first month of liquidation, half the inventory is sold for $60,000, and $60,000 of the accounts payable is paid. During the second month, the rest of the inventory is sold for $45,000, and the remaining accounts payable are paid. Cash is distributed at the end of each month, and the liquidation is completed at the end of the second month. 10. Refer to the information provided above. Using a safe payments schedule, how much cash will be distributed to Lilly at the end of the second month? A. $27,000 B. $36,000 C. $18,000 D. $0

C. $18,000

The trial balance of WM Partnership is as follows: Wilfred and Mike decides to incorporate their partnership. The partnership's books will be closed, and new books will be used for W & M Corporation. The following additional information is available: 1. The estimated fair values of the assets follow: 2. All assets and liabilities are transferred to the corporation. 3. The common stock is $10 par. Wilfred and Mike receive a total of 10,000 shares. 4. The partners share profits and losses in the ratio 7:3. 38. Based on the preceding information, the journal entry on W & M Corporation's books to record the assets and the issuance of the common stock will include a credit to Additional Paid-In Capital for: A. $0. B. $81,000. C. $31,000. D. $50,000.

C. $31,000

In the ABC partnership (to which Daniel seeks admittance), the capital balances of Albert, Bert, and Connell, who share income in the ratio of 5:3:2 are: 4. Based on the preceding information, what amount of goodwill will be recorded if Daniel invests $450,000 for a one-third interest? A. $0 B. $10,000 C. $50,000 D. $100,000

C. $50,000

A= The amount of tangible assets contributed by the new partner into the partnership B= The amount of capital credited to the new partner C= Total capital of the partnership before the admission of a new partner D= Total capital of the partnership after the admission of a new partner 17. Refer to the above information. Which statement below is correct if the old partners receive a bonus upon the contribution of assets into the partnership by a new partner? A. B < A and D = C - A B. B + A and D > C + A C. B < A and D = C + A D. B > A and D = C + A

C. B<A and D=C+A

14. Which of the following items are important in the determination of safe installment payments to partners? I. Deficits created in capital accounts are distributed to the remaining partners. II. All unsold noncash assets are assumed to be worthless. A. I only B. II only C. Both I and II D. Neither I nor II

C. Both I and II

21. When a partnership is formed, noncash assets contributed by partners should be recorded: I. at their respective book values for income tax purposes. II. at their respective fair values for financial accounting purposes. A. I only B. II only C. Both I and II D. Neither I nor II

C. Both I and II

23. (p. Appendix: A) On a partner's personal statement of changes in net worth, what type(s) of income is (are) recognized? I. Realized II. Unrealized A. I only B. II only C. Both I and II D. Neither I nor II

C. Both I and II

41. A limited liability company (LLC): I. is governed by the laws of the state in which it is formed. II. provides liability protection to its investors. III. does not offer pass-through taxation benefits of partnerships. A. Both I and III. B. III C. Both I and II D. I, II, and II

C. Both I and II

25. When a partner retires from a partnership and the retiring partner is paid more than the capital balance in her account, which of the following explains the difference? I. The retiring partner is receiving a bonus from the other partners. II. The retiring partner's goodwill is being recognized. A. I only B. II only C. Either I or II D. Neither I nor II

C. Either I or II

2. A partner's tax basis in a partnership is comprised of which of the following items? I. The partner's tax basis of assets contributed to the partnership. II. The amount of the partner's liabilities assumed by the other partners. III. The partner's share of other partners' liabilities assumed by the partnership. A. I plus II minus III B. I plus II plus III C. I minus II plus III D. I minus II minus III

C. I minus II plus III