Advance Chapter 15
A unique feature of partnerships (compared with publicly owned corporations) is that ______________________ . A)They do not have to follow GAAP. B)They are not governed by state laws. C)Their books have to be maintained on the tax basis. D)They do not file income tax returns. E)None of the above.
A
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. 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
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 the new partner 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
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 the new partner 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
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. 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 Allen and Daniel agree that some of the inventory is obsolete.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? Allen Daniel A) 140000 40000 B) 125000 35000 C) 120000 36000 D) 137000 39000 A. Option A B. Option B C. Option C D. Option D
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. 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
In the JK partnership, Jacob's capital is $140,000, and Katy's is $40,000. They share income in a 3:2 ratio, respectively. They decide to admit Erin to the partnership. Each of the following questions is independent of the others. Refer to the information provided above. Assume that Erin invests $40,000 for a one-fifth interest. Goodwill is to be recorded. The journal entry to record Erin's admission into the partnership will include A. a credit to cash for $40,000 B. a credit to Erin, Capital for $45,000 C. a credit to Erin, Capital for $40,000 D. a debit to goodwill for $4,000
B
The SRT partnership agreement specifies that partnership net income be allocated as follows: Partner S Partner R Partner T Salary allowance $20,000 $25,000 $15,000 Interest on average capital balance 10% 10% 10% Remainder 30% 30% 40% Average capital balances for the current year were $60,000 for S, $50,000 for R, and $40,000 for T. Refer to the information given. Assuming a current year net income of $125,000, what amount should be allocated to each partner? Partner S Partner R Partner T A. $15,000 $15,000 $20,000 B. $37,500 $37,500 $50,000 C. $41,000 $45,000 $39,000 D. $42,000 $48,000 $35,000
C
Data for the partnership of X and Y follow: X Y Capital balances............................................................... $50,000 $40,000 Profit and loss sharing ratio............................................... 60% 40% Z is to be admitted into the partnership and is to have a one-third interest in capital and profits with a cash contribution of $30,000. What are the balances in the capital accounts of X, Y, and Z under the bonus method? A)$44,000, $36,000, and $40,000, respectively. B)$56,000, $44,000, and $20,000, respectively. C)$50,000, $40,000, and $30,000, respectively. D)$50,000, $40,000, and $40,000, respectively. E)$50,000, $40,000, and $45,000, respectively.
A
Fox, Greg, and Howe are partners with average capital balances during 20X1 of $120,000, $60,000, and $40,000, respectively. Partners receive 10% interest on their average capital balances. After deducting salaries of $30,000 to Fox and $20,000 to Howe, the residual profit or loss is divided equally. In 20X1 the partnership sustained a $33,000 loss before interest and salaries to partners. By what amount should Fox's capital account change? A. $7,000 increase B. $11,000 decrease C. $35,000 decrease D. $42,000 increase
A
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. 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
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. 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
In the JK partnership, Jacob's capital is $140,000, and Katy's is $40,000. They share income in a 3:2 ratio, respectively. They decide to admit Erin to the partnership. Each of the following questions is independent of the others. Refer to the information provide above. Erin invests $50,000 for a one-fifth interest in the total capital of $230,000. What are the capital balances of Jacob and Katy after Erin is admitted into the partnership? Jacob Katy A. $142,400 $41,600 B. $142,000 $42,000 C. $140,000 $40,000 D. $137,600 $38,400
A
Jones and Smith formed a partnership with each partner contributing the following items: Jones Smith Cash 80000 40000 Building-cost to jones 300000 -fair value 400000 Inventory-cost to smith 200000 -fair value 280000 Mortgage payable 120000 Accounts payable 60000 Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed by the Jones and Smith partnership. Refer to the above information. What is each partner's tax basis in the Jones and Smith partnership? Jones Smith A) 350000 270000 B) 260000 180000 C) 360000 260000 D) 500000 300000 A. Option A B. Option B C. Option C D. Option D
A
On July 1, 20X1, James and Short formed a partnership. James contributed cash. Short, previously a sole proprietor, contributed property other than cash, including realty subject to a mortgage, which the partnership assumed. Short's capital account on July 1, 20X1, should be recorded at A)The property's fair value less the mortgage payable on July 1, 20X1. B)Short's book value of the property on July 1, 20X1. C)Short's book value of the property less the mortgage payable on July 1, 20X1. D)The property's fair value on July 1, 20X1.
A
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. 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
Cor-Eng Partnership was formed on January 2, 20X1. Under the partnership agreement, each partner has an equal initial capital balance accounted for under the goodwill method. Partnership net income or loss is allocated 60% to Cor and 40% to Eng. To form the partnership, Cor originally contributed assets costing $30,000 with a fair value of $60,000 on January 2, 20X1, while Eng contributed $20,000 in cash. Drawings by the partners during 20X1 totaled $3,000 by Cor and $9,000 by Eng. Cor-Eng's 20X1 net income was $25,000. Eng's initial capital balance in Cor-Eng is A. $25,000 B. $20,000 C. $60,000 D. $40,000
C
In the JK partnership, Jacob's capital is $140,000, and Katy's is $40,000. They share income in a 3:2 ratio, respectively. They decide to admit Erin to the partnership. Each of the following questions is independent of the others. Refer to the information provided above. Jacob and Katy agree that some of the inventory is obsolete. The inventory account is decreased before Erin is admitted. Erin invests $38,000 for a one-fifth interest. What is the amount of inventory written down? A. $10,000 B. $20,000 C. $28,000 D. $36,000
C
Which of the following accounts is not maintained for each partner in its accounting records? A. Capital account B. Drawing account C. Earnings account D. Loan account
C
The terms of a partnership agreement provide that one of the partners is to receive a salary allowance of $20,000 plus a bonus of 10 percent of income after deduction of the bonus and the salary allowance. If income is $130,000, the bonus should be A. $10,000 B. $11,000 C. $12,222 D. $20,000
A
Refer to the above information. What is the balance in each partner's capital account for financial accounting purposes? Jones Smith A) 350000 270000 B) 260000 180000 C) 360000 260000 D) 500000 300000 A. Option A B. Option B C. Option C D. Option D
C
James Dixon, a partner in an accounting firm, decided to withdraw from the partnership. Dixon's share of the partnership profits and losses was 20%. Upon withdrawing from the partnership he was paid $74,000 in final settlement for his interest. The total of the partners' capital accounts before recognition of partnership goodwill prior to Dixon's withdrawal was $210,000. After his withdrawal the remaining partners' capital accounts, excluding their share of goodwill, totaled $160,000. The total agreed upon goodwill of the firm was A. $250,000 B. $140,000 C. $160,000 D. $120,000
D
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 20X8, 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
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
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
Data for the partnership of X and Y follow: X Y Capital balances............................................................... $50,000 $40,000 Profit and loss sharing ratio............................................... 60% 40% Z is to be admitted into the partnership and is to have a one-third interest in capital and profits with a cash contribution of $30,000. The balances in the capital accounts of X, Y, and Z under the recording the goodwill method are: A)$44,000, $36,000, and $40,000, respectively. B)$56,000, $44,000, and $20,000, respectively. C)$50,000, $40,000, and $30,000, respectively. D)$50,000, $40,000, and $40,000, respectively. E)$50,000, $40,000, and $45,000, respectively.
E
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
The SRT partnership agreement specifies that partnership net income be allocated as follows: Partner S Partner R Partner T Salary allowance $20,000 $25,000 $15,000 Interest on average capital balance 10% 10% 10% Remainder 30% 30% 40% Average capital balances for the current year were $60,000 for S, $50,000 for R, and $40,000 for T. Refer to the information given. Assuming a current year net income of $45,000, what amount should be allocated to each partner? Partner S Partner R Partner T A. $17,000 $21,000 $7,000 B. ($9,000) ($9,000) ($12,000) C. $13,500 $13,500 $18,000 D. $22,500 $22,500 $0
A
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
When a partnership is formed, equity dictates that assets contributed to the partnership be recorded in the general ledger at their ____________________ . A)Fair (or current) value. B)Adjusted tax basis. C)Replacement value. D)Book value. E)Historical cost.
A
Which of the following accounts could be found in the general ledger of a partnership? Income Tax Expense Interest Expense on Partner loans A) No No B) Yes Yes C) Yes Yes D) No Yes A. Option A B. Option B C. Option C D. Option D
D
Which of the following statements best describes limited partnerships? A. In an LLP, there must be at least one general partner that is personally liable for the obligations of the partnership and has management responsibilities. B. There are no general or limited partners in a LP; each partner has the rights and duties of a general partner, but limited legal liability. C. The identifier LP or LLP need not be included in the name or identification of a limited partnership. D. If the presumption of control by the general partner can be overcome, the partner would account for its investment using the equity method of accounting.
D
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 the new partner 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
Griffin and Rhodes formed a partnership on January 1, 20X9. 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, 20X9, 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
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
Which of the following statements best describes accounting for a partnership? A. A partnership may be a profit or a nonprofit entity. B. A partnership may use federal income tax rules to account for transactions in their journals and ledger accounts. C. A partnership's equity section contains both capital and retained earnings accounts. D. A partnership may only distribute money through a dividend payment.
B
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: Albert 500000 Bert 300000 Connell 200000 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
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. 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
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. 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? Allen Daniel A) 136000 34000 B) 160000 60000 C) 170000 50000 D) 140000 40000 A. Option A B. Option B C. Option C D. Option D
C
In the JK partnership, Jacob's capital is $140,000, and Katy's is $40,000. They share income in a 3:2 ratio, respectively. They decide to admit Erin to the partnership. Each of the following questions is independent of the others. Refer to the information provided above. Erin directly purchases a one-fifth interest by paying Jacob $33,000 and Katy $9,000. The land account is increased for its implied increase in value before Erin is admitted. By what amount is the land account increased? A. $20,000 B. $24,000 C. $30,000 D. $36,000
C
In the JK partnership, Jacob's capital is $140,000, and Katy's is $40,000. They share income in a 3:2 ratio, respectively. They decide to admit Erin to the partnership. Each of the following questions is independent of the others. Refer to the information provided above. Erin invests $50,000 for a one-fifth interest in the total capital of $230,000. The journal entry to record Erin's admission into the partnership would include A. a debit to Jacob, Capital for $2,400. B. a credit to Erin, Capital for $50,000. C. a credit to Katy, Capital for $1,600. D. a credit to Cash for $50,000.
C
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
The DEF partnership reported net income of $130,000 for the year ended December 31, 20X8. According to the partnership agreement, partnership profits and losses are to be distributed as follows: D E F Salaries 25000 20000 15000 Bonus on net income 10% --- ---- Remainder 60% 30% 10% How should partnership net income for 20X8 be allocated to D, E, and F? A. Option A B. Option B C. Option C D. Option D
B
The APB partnership agreement specifies that partnership net income be allocated as follows: Partner A Partner P Partner B Salary allowance 30000 10000 40000 Interest on average capital balance 10% 10% 10% Remainder 40% 40% 20% Average capital balances for the current year were $50,000 for A, $30,000 for P, and $20,000 for B. 19. Refer to the information given. Assuming a current year net income of $50,000, what amount should be allocated to each partner? Partner A Partner P Partner B A) 20000 20000 10000 B) 16000 16000 8000 C) 19000 (3000) 34000 D) 17000 0 33000 A. Option A B. Option B C. Option C D. Option D
C
The JPB partnership reported net income of $160,000 for the year ended December 31, 20X8. According to the partnership agreement, partnership profits and losses are to be distributed as follows: J P B Salaries 50000 60000 30000 Bonus on net income 10% 5% 10% Remainder (if pos) 60% 30% 10% Remainder (if neg) 30% 40% 30% How should partnership net income for 20X8 be allocated to J, P, and B? A. Option A B. Option B C. Option C D. Option D
C
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
In the JK partnership, Jacob's capital is $140,000, and Katy's is $40,000. They share income in a 3:2 ratio, respectively. They decide to admit Erin to the partnership. Each of the following questions is independent of the others. Refer to the information provided above. Erin invests $52,000 for a one-fifth interest. What amount of goodwill will be recorded? A. $7,000 B. $28,000 C. $50,000 D. $80,000
B
In the LMN partnership, Lynn's capital is $60,000, Marty's is $80,000, and Nancy's is $70,000. They share income in a 4:3:3 ratio, respectively. Nancy is retiring from the partnership. Each of the following questions is independent of the others. 41. Refer to the information above. Nancy is paid $84,000, and no goodwill is recorded. In the journal entry to record Nancy's withdrawal A. Lynn, Capital will be debited for $7,000 B. Marty, Capital will be debited for $6,000 C. Nancy, Capital will be credited for $70,000 D. Cash will be debited for $84,000
B
The APB partnership agreement specifies that partnership net income be allocated as follows: Partner A Partner P Partner B Salary allowance 30000 10000 40000 Interest on average capital balance 10% 10% 10% Remainder 40% 40% 20% Average capital balances for the current year were $50,000 for A, $30,000 for P, and $20,000 for B. 18. Refer to the information given. Assuming a current year net income of $150,000, what amount should be allocated to each partner? Partner A Partner P Partner B A) 60000 60000 30000 B) 59000 37000 54000 C) 24000 24000 12000 D) 58000 38000 54000 A. Option A B. Option B C. Option C D. Option D
B
In the JK partnership, Jacob's capital is $140,000, and Katy's is $40,000. They share income in a 3:2 ratio, respectively. They decide to admit Erin to the partnership. Each of the following questions is independent of the others. Refer to the information provided above. Jacob and Katy agree that some of the inventory is obsolete. The inventory account is decreased before Erin is admitted. Erin invests $38,000 for a one-fifth interest. What are the capital balances of Jacob and Katy after Erin is admitted into the partnership? Jacob Katy A. $140,000 $40,000 B. $134,000 $36,000 C. $123,200 $28,800 D. $118,400 $25,600
C
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
In the LMN partnership, Lynn's capital is $60,000, Marty's is $80,000, and Nancy's is $70,000. They share income in a 4:3:3 ratio, respectively. Nancy is retiring from the partnership. Each of the following questions is independent of the others. Refer to the above information. Nancy is paid $76,000, and all implied goodwill is recorded. What is the total amount of goodwill recorded? A. $20,000 B. $14,000 C. $6,000 D. $0
A
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
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. 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
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. 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
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 the new partner 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
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
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
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 the new partner 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
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: Albert 500000 Bert 300000 Connell 200000 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
The fundamental objective underlying much of partnership accounting is that of
Equity
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 20X8. During 20X8, 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 20X8? A. $633,334 B. $466,666 C. $300,000 D. $190,000
C
On June 30, the balance sheet for the partnership of Williams, Brown and Lowe, together with their respective profit and loss ratios, was as follows: Assets, at cost $300,000 Williams, Loan $ 15,000 Williams, capital (20%) 70,000 Brown, capital (20%) 65,000 Lowe, capital (60%) 150,000 Total $300,000 Williams has decided to retire from the partnership and by mutual agreement the assets are to be adjusted to their fair value of $360,000 at June 30. It was agreed that the partnership would pay Williams $102,000 cash for his partnership interest exclusive of his loan which is to be repaid in full. No goodwill is to be recorded in this transaction. After William's retirement, and before the loan is repaid, what are the capital account balances of Brown and Lowe, respectively? A. $65,000 and $150,000 B. $72,000 and $171,000 C. $73,000 and $174,000 D. $77,000 and $186,000
B
Roberts and Smith drafted a partnership agreement that lists the following assets contributed at the partnership's formation: Contributed by Roberts Smith Cash $20,000 $30,000 Inventory 0 15,000 Building 0 40,000 Furniture & Equipment 15,000 0 The building is subject to a mortgage of $10,000, which the partnership has assumed. The partnership agreement also specifies that profits and losses are to be distributed evenly. What amounts should be recorded as capital for Roberts and Smith at the formation of the partnership? Roberts Smith A. $35,000 $85,000 B. $35,000 $75,000 C. $55,000 $55,000 D. $60,000 $60,000
B
The partnership agreement of Jones, King, and Lane provides for annual distribution of profit or loss in the following order of priority (with no specific limits): a. Jones, the managing partner, receives a bonus of 20% of profits. b. Each partner receives 15% interest on average capital investment. c. Residual profit or loss is divided equally. The average capital investments for 2006 were: Jones......................................................................... $100,000 King........................................................................................ 200,000 Lane................................................................................. 300,000 How much of the $90,000 partnership profit for 2006 should be allocated to Jones? A)$15,000 B)$27,000 C)$30,000 D)$33,000 E)None of the above.
B
The purchase of an interest by an outsider direclty from one or more of the existing partners of a partnership results in ___________________ . A)No entries being made in the partnership's books. B)An entry solely within the capital accounts. C)An entry to record the receipt of the consideration paid. D)An entry to revalue tangible and intangible assets or to use the bonus method to give effect to such undervaluations. E)An entry to reflect payments to the applicable existing partner(s) and receipt of a capital contribution from the new partner.
B
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
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
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
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
Mutt and Jeff formed a partnership on April 1 and contributed the following assets: Mutt Jeff Cash $ 150,000 $ 50,000 Land 310,000 The land was subject to a $30,000 mortgage, which the partnership assumed. Under the partnership agreement, Mutt and Jeff share profit and loss in the ratio of one-third and two-thirds, respectively. Jeff's capital account at April 1 should be A)$360,000. B)$330,000. C)$300,000. D)$340,000.
B $330,000 = $50,000 + ($310,000 − $30,000)
RD formed a partnership on February 10, 20X9. 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? Total Capital R, Capital A) 450,000 270,000 B) 330,000 198,000 C) 300,000 180,000 D) 270,000 162,000 A. Option A B. Option B C. Option C D. Option D
C
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
In the JK partnership, Jacob's capital is $140,000, and Katy's is $40,000. They share income in a 3:2 ratio, respectively. They decide to admit Erin to the partnership. Each of the following questions is independent of the others. Refer to the information provided above. What amount will Erin have to invest to give her a one-fourth interest in the capital of the partnership if no goodwill or bonus is recorded? A. $45,000 B. $50,000 C. $60,000 D. $66,000
C
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. 38. 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
On July 1, Mabel and Pierre formed a partnership, agreeing to share profits and losses in the ratio of 4:6, respectively. Mabel contributed a parcel of land that cost her $25,000. Pierre contributed $50,000 cash. The land was sold for $50,000 on July 1, four hours after formation of the partnership. How much should be recorded in Mabel's capital account on the partnership formation? A)$10,000. B)$25,000. C)$50,000. D)$20,000.
C
On May 1, 20X1, Cathy and Mort formed a partnership and agreed to share profits and losses in the ratio of 3:7, respectively. Cathy contributed a parcel of land that cost her $10,000. Mort contributed $40,000 cash. The land was sold for $18,000 immediately after the partnership's formation. What amount should be recorded in Cathy's capital account at the time the partnership is formed the partnership's? A)$17,400. B)$15,000. C)$18,000. D)$10,000.
C
In the LMN partnership, Lynn's capital is $60,000, Marty's is $80,000, and Nancy's is $70,000. They share income in a 4:3:3 ratio, respectively. Nancy is retiring from the partnership. Each of the following questions is independent of the others. Refer to the above information. Nancy is paid $84,000, and no goodwill is recorded. What is Lynn's capital balance after Nancy withdraws from the partnership? A. $68,000 B. $54,000 C. $53,000 D. $52,000
D
Two individuals who were previously sole proprietors form a partnership. Property other than cash that is part of the initial investment in the partnership is recorded for financial accounting purposes at the A)Proprietors' book values of the property on the date of the investment. B)Proprietors' book values or the property's fair value on the date of the investment, whichever is higher. C)Proprietors' book values or the property's fair value on the date of the investment, whichever is lower. D)Property's fair value at the date of the investment.
D
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. 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? Allen Daniel A) 160000 60000 B) 136000 36000 C) 140000 40000 D) 137000 39000 A. Option A B. Option B C. Option C D. Option D
D
In the JK partnership, Jacob's capital is $140,000, and Katy's is $40,000. They share income in a 3:2 ratio, respectively. They decide to admit Erin to the partnership. Each of the following questions is independent of the others. Refer to the information provided above. Erin directly purchased a one-fifth interest by paying Jacob $33,000 and Katy $9,000. The land account is increased for its implied increase in value before Erin is admitted. What are the capital balances of Jacob and Katy after Erin is admitted into the partnership? Jacob Katy A. $140,000 $40,000 B. $152,000 $48,000 C. $155,000 $55,000 D. $158,000 $52,000
D
A partnership is formed by two individuals who were previously sole proprietors. Property other than cash that is part of the initial investment in the partnership would be recorded for financial reporting purposes at the ___________________________ . A)Proprietor's book values or the fair value of the property at the date of the investment, whichever is higher. B)Proprietor's book values or the fair value of the property at the date of the investment, whichever is lower. C)Proprietor's book values of the property at the date of the investment. D)None of the above. E)Fair value of the property at the date of the investment.
E
