Advanced Accounting CH14

Jell and Dell were partners with capital balances of $600 and $800, and an income-sharing ratio of 2:3. They admitted Zell with a 30% interest in the partnership, and the total amount of goodwill credited to the original partners was $700. What amount did Zell contribute to the business? A) $900. B) $560. C) $600. D) $590. E) $630.

A

The advantages of the partnership form of business organization, compared to corporations, include A) Single taxation. B) Ease of raising capital. C) Mutual agency. D) Limited liability. E) Difficulty of formation.

A

When Danny withdrew from John, Daniel, Harry, and Danny, LLP, he was paid $80,000, although his capital account balance was only $60,000. The four partners shared net income and losses equally, and no revaluation will take place. The journal entry to record the effect on John's capital due to Danny's withdrawal would include: A) $ 6,667 debit to John, Capital. B) $ 6,667 credit to John, Capital. C) $20,000 debit to John, Capital. D) $ 5,000 debit to John, Capital. E) $ 5,000 credit to John, Capital.

A

Which of the following type of organization is classified as a partnership, or similar to a partnership, for tax purposes? (I.) Limited Liability Company (II.) Limited Liability Partnership (III.) Subchapter S Corporation A) II only. B) II and III. C) I and II. D) I and III. E) I, II, and III.

E

The disadvantages of the partnership form of business organization, compared to corporations, include A) The legal requirements for formation. B) Unlimited liability for the partners. C) The requirement for the partnership to pay income taxes. D) The extent of governmental regulation. E) The complexity of operations.

B

The partnership contract for Hanes and Jones LLP provides that Hanes is to receive a bonus of 20% of net income (after the bonus) and that the remaining net income is to be divided equally. If the partnership income before the bonus for the year is $57,600, Hanes' share of this pre-bonus income is: A) $28,800. B) $33,600. C) $34,560. D) $35,520. E) $38,400.

B

Cherryhill and Hace had been partners for several years, and they decided to admit Quincy to the partnership. The accountant for the partnership believed that the dissolved partnership and the newly formed partnership were two separate entities. What method would the accountant have used for recording the admission of Quincy to the partnership? A) The bonus method. B) The equity method. C) The goodwill method. D) The proportionate method. E) The cost method.

C

Max, Jones and Waters shared profits and losses 20%, 40%, and 40% respectively and their partnership capital balance is $10,000, $30,000 and $50,000 respectively. Max has decided to withdraw from the partnership. An appraisal of the business and its property estimates the fair value to be $200,000. Land with a book value of $30,000 has a fair value of $45,000. Max has agreed to receive $20,000 in exchange for her partnership interest after revaluation. At what amount should land be recorded on the partnership books? A) $ 20,000. B) $ 30,000. C) $ 45,000. D) $ 50,000. E) $200,000.

C

Partnerships have alternative legal forms including all of the following except: A) General Partnership. B) Limited Partnership. C) Subchapter S Partnership. D) Limited Liability Partnership. E) Limited Liability Company.

C

The partners of Apple, Bere, and Carroll LLP share net income and losses in a 5:3:2 ratio, respectively. The capital account balances on January 1, 2018, were as follows: Apple, capital $25,000 Bere, capital 75,000 Carroll, capital 50,000 Total partner capital $150,000 The carrying amounts of the assets and liabilities of the partnership are the same as their current fair values. Dorr will be admitted to the partnership with a 20% capital interest and a 20% share of net income and losses in exchange for a cash investment. The amount of cash that Dorr should invest in the partnership is: A) $25,000. B) $30,000. C) $37,500. D) $75,000. E) $90,000.

C

Which of the following statements is correct regarding the admission of a new partner? A) A new partner must purchase a partnership interest directly from the business. B) The right of co-ownership in the business property can be transferred to a new partner without the consent of other existing partners. C) The right to participate in management of the business cannot be conveyed without the consent of other existing partners. D) The right to share in profits and losses can be sold to a new partner without the consent of other existing partners. E) A new partner always pays book value.

C

Withdrawals from the partnership capital accounts are typically not used A) To reward partners for work performed in the business. B) To reduce the partners' capital account balances at the end of an accounting period. C) To record interest earned on a partner's capital balance. D) To reduce the basic investment that has been made in the business. E) To record the partnership's payment of a partner's personal expense such as income tax.

C

When the hybrid method is used to record the withdrawal of a partner, the partnership A) Revalues assets and liabilities and records goodwill to the continuing partner but not to the withdrawing partner. B) Revalues liabilities but not assets, and no goodwill is recorded. C) Can recognize goodwill but does not revalue assets and liabilities. D) Revalues assets but not liabilities, and records goodwill to the continuing partner but not to the withdrawing partner. E) Revalues assets and liabilities but does not record goodwill.

E

Jerry, a partner in the JSK partnership, begins the year on January 1, 2018 with a capital balance of $20,000. The JSK partnership agreement states that Jerry receives 6% interest on his monthly weighted average capital balance without regard to normal drawings. Each partner draws $5,000 in cash from the business every quarter. Any withdrawal in excess of that will be accounted for as a direct reduction of the partner's capital balance. · On March 1, 2018, when the partnership tax return for 2017 was completed, Jerry's capital account was credited for his share of 2017 profit of $120,000. · Jerry withdrew $5,000 quarterly, beginning March 31st. · On September 1, Jerry's capital account was credited with a special bonus of $60,000 for business he brought to the partnership. What amount of interest will be attributed to Jerry for the year 2018 that will go toward his profit distribution for the year? A) $6,000. B) $6,250. C) $7,950. D) $8,400. E) None of these answer choices is correct.

D

The appropriate format of the December 31, 2017 closing entry for John & Hope Limited Liability Partnership, whose two partners had withdrawn their salaries from the partnership during the year, is: A) John, Drawing Hope, Drawing Salaries Payable B) Salaries Expense John, Drawing Hope, Drawing C) John, Capital Hope, Capital Salaries Payable D) John, Capital Hope, Capital John, Drawing Hope, Drawing

D

The partnership of Clapton, Seidel, and Thomas is insolvent and will be unable to pay $30,000 in liabilities that are currently due. What recourse is available to the partnership's creditors? A) They must present equal claims to the three partners as individuals. B) They must try to obtain payment from the partner with the largest capital account balance. C) They cannot seek remuneration from the partners as individuals. D) They may seek remuneration from any partner they choose. E) They must present their claims to the three partners in descending order based on the partners' capital account balances.

D

Which of the following is not a characteristic of a partnership? A) The partnership itself pays no income taxes. B) It is easy to form a partnership. C) Any partner can be held personally liable for all debts of the business. D) A partnership requires written Articles of Partnership. E) Each partner has the power to obligate the partnership for liabilities.

D

The dissolution of a partnership occurs A) Only when the partnership sells its assets and permanently closes its books. B) Only when a partner leaves the partnership. C) At the end of each year, when income is allocated to the partners. D) Only when a new partner is admitted to the partnership. E) When there is any change in the individuals who make up the partnership.

E

Which of the following could be used as a basis to allocate profits among partners who are active in the management of the partnership? 1) Allocation of salaries. 2) The number of years with the partnership. 3) The amount of time each partner works. 4) The average capital invested. A) 1 and 2. B) 1 and 3. C) 1, 2, and 4. D) 1, 3, and 4. E) 1, 2, 3, and 4.

E