ADVANCED ACCOUNTING II - Chapter 15

For a $15,000 investment, Sharon purchased a 20% interest in a partnership. Which of the following journal entries records the admission of Sharon into the partnership? Assume the investment cost equals the new partner's proportion of the partnership's book value.

Debit Cash for $15,000; Credit Sharon, Capital for $15,000

Karen retires from the KLN Partnership when her capital account has a balance of $15,000 after recording all increases in the partnership's net assets. This balance has also been adjusted for her share of income earned and her drawings up to her retirement date. All partners agree to a buyout price of $15,000. Which of the following journal entries records Karen's retirement? Multiple choice question.

Debit Karen, Capital for $15,000; Credit Cash for $15,000

Linda, Mark, and John are partners in the LMJ Partnership, sharing profits and losses in the ratio of 25:25:50.

Debit Mark, Capital for $50,000; Credit Linda, Capital for $2,000; Credit John, Capital for $4,000; Credit Cash for $44,0000

Which of the following statements are true regarding a partnership's taxation?

The tax-exempt income earned by the partnership is passed on to the individual partners. The individual partners must report their share of the partnership income or loss on their personal tax returns.

Perez and Smith formed PS Partnership. After operations and partners' withdrawals during 20X1 and 20X2, PS Partnership's net assets have a book value of $100,000 on January 1, 20X3. On that date, Perez's capital balance is $60,000 and Smith's capital balance is $40,000. Their profit and loss-sharing ratio is 50:50. Also on January 1, Perez and Smith invite Brian to become a partner in their business. Brian purchases a 20 percent interest in the partnership capital directly from Perez and Smith for a total cost of $25,000, paying $12,500 to Perez and $12,500 to Smith. Which of the following entries records the reclassification of PSB partnership's capital to Brian?

Debit Perez, Capital for $12,000; Debit Smith, Capital for $8,000; Credit Brian, Capital for $20,000

Ronald, Laura, and Karen are partners in the RLK Partnership, sharing profits and losses in the ratio of 20:40:40. On December 31, 20X3, Ronald retires from RLK Partnership when his capital account has a $20,000 balance after recording all increases in the partnership's net assets, his share of income earned, and drawings up to his retirement date. The remaining partners agree to a buyout price of $35,000 for Ronald's partnership interest. Which of the following journal entries records Ronald's retirement?

Debit Ronald, Capital for $20,000; Debit Laura, Capital for $7,500; Debit Karen, Capital for $7,500; Credit Cash for $35,000

When additional units are provided to a partner obtaining new clients and providing industrial expertise, identify the most probable basis of income distribution.

Partnership units

Which of the following mathematical expressions measures the partnership's total capital in the revaluation method

Partnership's total capital = Prior capital balances - Net asset valuation write-down + New partner's investment and new goodwill

Which of the following mathematical expressions measures the partnership's total capital in the revaluation method to account for a new partner's admission? Assume that the new partner's investment is less than his/her proportionate share of the partnership's net assets.

Partnership's total capital = Prior capital balances - Net asset valuation write-down + New partner's investment and new goodwill

Identify the items that will be recognized pro rata for an oil venture.

Revenues and expenses Assets and liabilities

Which of the following statements are true about the revaluation method of accounting for the admission of a new partner? Assume that the new partner's investment is less than his/her proportionate share of the partnership's net assets.

The book value of net assets should decrease. Goodwill or other intangible benefits brought in by the new partner should be recorded

Which of the following statements are true about the revaluation method of accounting for the admission of a new partner? Assume that the new partner's investment is less than his/her proportionate share of the partnership's net assets. Multiple select question.

The book value of net assets should decrease. Goodwill or other intangible benefits brought in by the new partner should be recorded.

Identify the accounting method to be used for recording an investment in the common stock of a corporate joint venture.

The equity method

Garcia and Thompson formed GT Partnership. Their profit and loss-sharing ratio is 60:40. On January 1, 20X3, Garcia and Thompson invite Davis to become a partner in their business. Davis purchases a 10 percent interest in the partnership capital directly from Garcia and Thompson. Which of the following statements are true regarding the transaction between Davis and the individual partners?

The exchange of cash is not reflected on the partnership's books. The only required entry is to reclassify the partnership capital.

Which of the following statements are true regarding a partnership joint venture?

The investment in the partnership joint venture is debited for the initial investment. Each venturer maintains an investment account on its books for its share of the partnership venture capital. The withdrawals and shares of losses of the partnership joint venture are credited to the investment account.

Which of the following conclusions may be indicated when a new partner's investment is less than his or her proportionate share of the partnership's new net assets

The partnership's net assets are overvalued. The new partner brings additional value to the table associated with his or her expertise or skills.

Which of the following are true when a new partner's investment is more than his or her proportion of the partnership's book value?

The revaluation of an asset increases the partnership's total resulting capital. Under the bonus method, the partnership's total resulting capital is the sum of the existing partnership's capital plus the new partner's investment. The recognition of goodwill increases the partnership's total resulting capital.

On January 1, 20X1, Linda and Susan formed LS Partnership. The partnership earned a profit of $20,000 during the year. 10% of all income in excess of $4,000 is credited to Linda's capital account as a bonus. This is done before distributing the remaining profit. What is the bonus amount if it is computed as a percentage of income after subtracting it? (Hint: Bonus = 10% × ($20,000 - $4,000 - Bonus.)

$1,455

Assume Linda retires from the MBL Partnership. Linda has a credit balance of $25,000 in her capital account, and all the partners agree to a buyout price of $35,000. Mike has a 20 percent interest and Betty has a 40 percent interest in the MBL Partnership's income and net assets. What is the amount of capital adjustment bonus given to Linda?

$10,000

On January 1, 20X3, Robert and Harry invite Betty to become a partner in their partnership. The resulting partnership will be called RHB Partnership. On the reclassification of the partnership capital, the capital credit to Betty is only $10,000, although she paid $12,500 for her 25% interest. The payment made by Betty implies that the fair value of the partnership is Blank______.

$50,000

On January 1, 20X1, Mark and Paul formed MP Partnership. The partnership earned a profit of $12,000 during the year. A 5% bonus of any income in excess of $2,000 is to be credited to Mark's capital account before distributing the remaining profit. What is the bonus amount if computed before subtracting the bonus?

$500

Linda contributes a building to the LM Partnership. The building originally cost $10,000 and has been depreciated $4,000. The building has a market value of $15,000. For tax purposes, the partnership records the building at

$6,000

Maria invests $35,000 for a 10 percent capital interest in PQ Partnership. The partnership's total book value before Maria's admission is $255,000. What is the difference in Maria's proportionate book value and her investment in the partnership?

$6,000

Daniel contributes a building to the DL Partnership. The building originally cost $12,000 and has been depreciated $3,000. The building has a $18,000 market value. For financial reporting purposes (based on GAAP), the partnership records the building at

$18,000

On January 1, 20X3, Maria and Jeff invite Susan to become a partner in their business. The resulting partnership will be called MJS Partnership. Susan invests $25,000 for a 10 percent interest. The book value of the partnership's net assets before Susan's admission is $200,000. What is MJS Partnership's implied goodwill?

$25,000

Carol and Sandra formed the CS Partnership. The book value of the partnership's net assets before a new partner's admission is $255,000. The new partner, Lisa, agrees to purchase a 15% capital interest in the new net assets. If Lisa's investment is equal to her proportionate book value, implying that the net assets are fairly valued, what is Lisa's capital contribution?

$45,000

Edward, Brian, and Ryan are partners in EBR Partnership, sharing profit and loss in the ratio of 20:50:30. On December 31, 20X3, Brian retires from EBR Partnership when his capital account has a balance of $50,000 after recording all increases in the partnership's net assets, including income earned up to his retirement date. All partners agree to $62,000 as the buyout price of Brian's partnership interest. Calculate the ratio in which the capital adjustment bonus to Brian is accounted from the remaining partner's capital accounts.

40:60 (Edward: Ryan)

Which of the following statements are true of partnerships?

A partnership can obtain more equity capital than a single individual can. A partnership allows risks to be shared in rapidly growing businesses. A partnership is easy to form.

Identify the statement that is true when an investor does not have a majority stock ownership in joint ventures.

Agreements may specify the allocation of the entity's profits or losses.

Identify the relationship between the investment account balance and a partner's capital account balance for a partnership joint venture

Balance in the investment account = Balance in the partner's capital account

Identify the relationship between the investment account balance and a partner's capital account balance for a partnership joint venture. Multiple choice question.

Balance in the investment account = Balance in the partner's capital account

Sandra and Sarah formed SS Partnership. Their profit and loss-sharing ratio is 25:75. After operations and partners' withdrawals during 20X1 and 20X2, SS Partnership has a $200,000 book value. On January 1, 20X3, Sandra's capital balance is $120,000 and Sarah's capital balance is $80,000. On January 1, 20X3, Sandra and Sarah invite Dorothy to become a partner in their business. Dorothy purchases a 10 percent interest in the partnership capital directly from Sandra and Sarah. The partnership revalues the assets at the time of Dorothy's admission and finds that the land is undervalued by $5,000. The new values of Sandra's and Sarah's capital accounts (before capital reclassification to Dorothy) are $121,250 and $83,750, respectively. Which of the following entries records the capital reclassification to Dorothy?

Debit Sandra, Capital for $12,125; Debit Sarah, Capital for $8,375; Credit Dorothy, Capital for $20,500

On January 1, 20X1, Edward and Garcia formed EG Partnership. Both agreed to allocate profits first based on 10 percent of the weighted-average capital balances and then to allocate any remaining profit based on a 40:60 ratio. The weighted-average capital balance at the year-end for Edward was $120,000 and Garcia's was $80,000, resulting in a first profit allocation of $12,000 and $8,000 respectively. Calculate the partners' share in the distribution of the $40,000 profit on December 31, 20X1. (Hint: after the first profit allocation, the remaining profit to be allocated is $20,000.)

Edward's share = $20,000; Garcia's share = $20,000

Which of the following statements are true about the revaluation method of accounting for the admission of a new partner? Assume that the new partner's investment is less than his/her proportionate share of the partnership's net assets.

Goodwill or other intangible benefits brought in by the new partner should be recorded. The book value of net assets should decrease.

Karen and Jason formed KJ Partnership. Their profit and loss-sharing ratio is 30:70. On January 1, 20X3, Karen and Jason invite Linda to become a partner in their business. The original partners decide to recognize the increase in their land's value prior to Linda's admission. The land has a book value of $7,000, but a recent appraisal indicates that it has a market value of $12,000. What is the increase in the original partners' capital due to the increase in the land's value?

Increase in Karen's capital = $1,500; Increase in Jason's capital = $3,500

Which of the following statements are true regarding a 50 percent-owned venture?

It has only two venturers. It divides the ownership share equally between the two venturers.

Which of the following statements are true regarding an incorporated joint venture?

It limits the liability of each investor to the amount of her or his investment in the venture. Its stock is not traded publicly. It formalizes the legal relationships between the venturers.

Identify the statement that is true about research joint ventures.

Two or more corporations agree to share the costs and eventual research accomplishments.

Which of the following are true when a new partner's investment is more than his or her proportion of the partnership's book value?

Under the bonus method, the partnership's total resulting capital is the sum of the existing partnership's capital plus the new partner's investment. The revaluation of an asset increases the partnership's total resulting capital. The recognition of goodwill increases the partnership's total resulting capita

The "entity concept" means

a partnership can sue or be sued. a partnership is a separate business entity, distinct from its partners.

ASC 810 specifies that the consolidation of a variable interest entity (VIE) is required if

an investor receives a majority of the entity's expected return. an investor absorbs a majority of its expected losses.

At the time of a new partner's admission, the revaluation of net assets method adjusts the

historical cost bases of the partnership's net assets.

IFRS for small and medium-size enterprises mandate ______ in comparison to conventional IFRS.

less detail and fewer disclosures

Accounting for an investment in a limited partnership is based on an evaluation of the

operational control of the partner.

An undivided interest exists in unincorporated joint ventures when each investor-venturer

owns a proportionate share of each asset. is proportionately liable for his or her share of each liability.

A partner's tax basis in a partnership is computed as follows: Partner's tax basis of any assets contributed to the partnership plus partner's share of other partners' liabilities assumed by the partnership less

partner's liabilities assumed by the other partners.

An excess of investment over the respective book value of the partnership interest indicates that the

partnership's prior net assets are undervalued

A new partner's proportionate interest in the net assets of a partnership is compared with the new partner's investment to determine the

procedures to follow in accounting for his or her admission.

Each partner's tax basis is used for the tax recognition of gains or losses on

subsequent disposals of the partner's investment in the partnership.

When a partnership business has an operating loss,

the individual partners can recognize their share of partnership loss on their own tax returns