ACCT 3731 - Advanced Accounting: Exam 4 (Final) M/C From McGraw Website

2 A partnership is in the process of liquidating and is currently reporting the following capital balances. Roberta has indicated that the $40,000 deficit will be covered by a forthcoming contribution. However, the two remaining partners have asked to receive the $140,000 in cash that is presently available. How much of this money should each partner be given? A) A B) B C) C D) D E) E

A

7 A partnership was formed on January 5 of the current year with the following capital balances: The Articles of Partnership stipulated that profits and losses are assigned as follows: • Each partner is allocated interest equal to 10% of the beginning capital balance. • Donald is allocated a $40,000 salary • Any remaining profits/losses are allocated on a 2:3:5 basis, respectively. • Each partner is allowed to withdraw up to $10,000 per year. Net income of $150,000 was earned by the business in the current year. Assuming that each partner withdraws the maximum amount, how much income is allocated to Donald in the current year? A) $73,000 B) $33,000 C) $22,000 D) $55,000 E) $81,000

A) $73,000

13 Paul and Mark are partners having capital balances of $50,000 and $60,000, respectively, and share profits and losses equally. Jay is going to invest $65,000 into the business to acquire a one-third ownership interest. If the bonus method is used to record Jay's admission to the partnership: A) Jay's capital will be $58,333 B) Mark's capital will be $70,000 C) Paul's capital will be $46,667 D) Total capital will be $195,000 E) Goodwill will be recorded at $15,000

A) Jay's capital will be $58,333

1 Which one of the following is a reason for the popularity of partnerships as a legal form for businesses? A) Partnerships avoid the double taxation of income that is found in corporations. B) Partnerships require a written Articles of Partnership. C) In some cases, losses may be used to offset gains for income tax purposes. D) Partners in partnerships are not subject to unlimited liability. E) Partnerships avoid mutual agency.

A) Partnerships avoid the double taxation of income that is found in corporations.

15 A partnership is liquidating and one of the partner's capital accounts has a deficit balance. What should happen? A) The deficit balance should be removed from the accounting records and the remaining partners would share in any additional profits. B) The partner with the deficit should contribute enough personal assets to eliminate the deficit balance. C) The other partners must file a legal suit against the partner with a deficit. D) The other partners should contribute personal assets to eliminate the deficit balance. E) The partner with the highest capital balance should allocate enough dollars to eliminate the deficit balance.

B) The partner with the deficit should contribute enough personal assets to eliminate the deficit balance.

7 The following condensed balance sheet is for the Ashley, Bart, and Charles partnership. The partners share profits and losses in the ratio of 5:3:2, respectively. Cash : $125,000 Inventory : 100,000 Other Assets : 300,000 Total Assets : 525,000 Liabilities : 270,000 Ashley Cap : 100,000 Bart Cap : 85,000 Charles Cap : 70,000 Total Liab & Partners' Equity : 525,000 The partners have decided to liquidate the business. Liquidation expenses are estimated to be $8,000. The other assets are sold for $180,000. What distribution can be made to the partners? A) A B) - 0 - | 8,200 | 18,800 C) C D) D E) E

B) - 0 - | 8,200 | 18,800

6 The partnership of Adams and Washington decided to admit Jefferson as a partner with a 20% interest. Jefferson invested $60,000 in cash into the partnership. Adams' and Washington's capital accounts and their profit and loss sharing ratios are shown below: If the partnership used the bonus method, what would be the capital balances for Adams, Washington, and Jefferson after Jefferson's investment was recorded? Adams | Washington | Jefferson A) 145,000 | 95,000 | 60,000 B) 109,000 | 59,000 | 42,000 C) 130,000 | 80,000 | 42,000 D) 85,000 | 35,000 | 30,000 E) 85,000 | 35,000 | 90,000

B) 109,000 | 59,000 | 42,000

5 The following condensed balance sheet is for the partnership of Andrews, Carroll, and Murray, who share profits and losses in the ratio of 6:2:2, respectively. If the other assets are sold for $100,000, how should the available cash be distributed? A) A B) 6,250 | 3,750 | - 0 - C) C D) D E) E

B) 6,250 | 3,750 | - 0 -

12 Paul and Mark are partners having capital balances of $50,000 and $60,000, respectively, and share profits and losses equally. Jay is going to invest $65,000 into the business to acquire a one-third ownership interest. If the goodwill method is used to record Jay's admission to the partnership: A) Jay's capital will be $58,333 B) Mark's capital will be $70,000 C) Paul's capital will be $46,667 D) Total capital will be $175,000 E) Goodwill will be recorded at $15,000

B) Mark's capital will be $70,000

2 Algood and Gaw began a partnership on January 2 of the current year. Algood invested cash of $150,000 as well as inventory costing $30,000, but with a current appraised value of $50,000. Gaw contributed land with a $60,000 book value and a $90,000 fair market value. The partnership also accepted responsibility for a $70,000 note payable owed in connection with the land. The partners agreed to begin operations with equal capital balances. Assuming that the bonus method was used by this partnership, what was Algood's initial capital balance? A) $200,000 B) $145,000 C) $110,000 D) $120,000 E) $85,000

C) $110,000

8 A partnership has the following capital balances: Monica Cap - 50% : 100,000 Patricia Cap - 30% : 80,000 Susan Cap - 20% : 50,000 If the partnership is to be liquidated and $20,000 becomes immediately available, who gets the money? Monica | Patricia | Susan A) $10,000 | 6,000 | 4,000 B) 7,000 | 8,000 | 5,000 C) - 0 - | 14,000 | 6,000 D) 8,696 | 6,956 | 4,348 E) - 0 - | 13,600 | 6,400

C) - 0 - | 14,000 | 6,000

10 Stanley, a partner of the Newtown partnership, made a loan to the partnership. The partnership is now in liquidation. Which one of the following statements is incorrect regarding the status of this loan during the liquidation process? A) The loan must be repaid before any cash distribution is made to the other partners, even if Stanley does not have a sufficient amount of capital to absorb all possible losses. B) The loan has a lower priority than obligations to outside creditors. C) If the partner has a negative safe capital balance, a portion or even all of the loan should be retained as an offset against the capital account. D) The loan is accounted for in liquidation as if it were a component of the partner's capital. E) If Stanley is insolvent and reports a negative capital balance, the handling of the loan becomes significant.

A) The loan must be repaid before any cash distribution is made to the other partners, even if Stanley does not have a sufficient amount of capital to absorb all possible losses.

3 A partnership is considering the possibility of liquidation because one of the partners, Stewart, is insolvent. Capital balances at the current time are as follows, and profits and losses are divided on a 6:3:1 basis, respectively. Stewart's creditors have filed a $60,000 claim against the partnership's assets. The partnership currently holds assets reported at $300,000 and liabilities of $100,000. If the assets can be sold for $150,000, what is the minimum amount that Stewart's creditors would receive? A) A B) B C) C D) D E) E

B

3 Algood and Gaw began a partnership on January 2 of the current year. Algood invested cash of $150,000 as well as inventory costing $30,000, but with a current appraised value of $50,000. Gaw contributed land with a $60,000 book value and a $90,000 fair market value. The partnership also accepted responsibility for a $70,000 note payable owed in connection with the land. The partners agreed to begin operations with equal capital balances. Assuming that the goodwill method was used by this partnership, what is the amount of goodwill and the amount of Gaw's initial capital balance? Goodwill | Capital Balance A) $110,000 | $120,000 B) $180,000 | $200,000 C) $110,000 | $200,000 D) $180,000 | $120,000 E) $180,000 | $235,000

B) $180,000 | $200,000

10 As of December 31 of the current year, the Manhattan Co. partnership had the following capital balances: Profits/Losses are split on a 4:3:2:1 basis, respectively. Adams decided to leave the partnership and was paid $324,000 from the business based on the original contractual agreement. If the goodwill method is applied, what is the capital for Scott after Adams' withdrawal? A) $425,000 B) $432,000 C) $416,000 D) $475,000 E) $437,000

B) $432,000

4 The partnership of Adams and Washington decided to admit Jefferson as a partner with a 20% interest. Jefferson invested $60,000 in cash into the partnership. Adams' and Washington's capital accounts and their profit and loss sharing ratios are shown below: If the partnership used the goodwill method, how much goodwill should be recognized by this transaction? A) $60,000 B) $90,000 C) $110,000 D) $150,000 E) $300,000

B) $90,000

8 A partnership was formed on January 5 of the current year with the following capital balances: The Articles of Partnership stipulated that profits and losses are assigned as follows: Each partner is allocated interest equal to 10% of the beginning capital balance. Donald is allocated a $40,000 salary Any remaining profits/losses are allocated on a 2:3:5 basis, respectively. Each partner is allowed to withdraw up to $10,000 per year. Net income of $150,000 was earned by the business in the current year. Assuming that each partner withdraws the maximum amount, what is each partner's capital account balance at the end of the current year? Curtis | Donald | Edward A) 132,000 | 223,000 | 265,000 B) 213,000 | 132,000 | 275,000 C) 112,000 | 213,000 | 295,000 D) 122,000 | 223,000 | 265,000 E) 145,000 | 200,000 | 275,000

C) 112,000 | 213,000 | 295,000

5 The partnership of Adams and Washington decided to admit Jefferson as a partner with a 20% interest. Jefferson invested $60,000 in cash into the partnership. Adams' and Washington's capital accounts and their profit and loss sharing ratios are shown below: If the partnership used the goodwill method, what would be the capital balances for Adams, Washington, and Jefferson after Jefferson's investment was recorded? Adams | Washington | Jefferson A) 109,000 | 59,000 | 42,000 B) 130,000 | 80,000 | 60,000 C) 145,000 | 95,000 | 60,000 D) 100,000 | 50,000 | 100,000 E) 100,000 | 50,000 | 42,000

C) 145,000 | 95,000 | 60,000

14 The High and Low partnership agreement stipulates that profits and losses be assigned in the following manner: For managing the business, High receives a 15% bonus of partnership income before salary and bonus. High receives a salary of $45,000. Any remaining profit and loss is allocated equally. During the current year, the partnership had a net income $50,000 before the bonus and salary allowance. Low's equity in the partnership would A) Increase B) Increase the same amount as High's C) Decrease D) Decrease the same amount as High's E) Not change

C) Decrease

1 In a partnership liquidation, how is the final allocation of business assets made to the partners? A) equally B) according to the profit and loss ratio C) according to the balances of the partners' loan and capital accounts D) according to the initial investments made by the partners E) according to the method stipulated by the partnership agreement1

C) according to the balances of the partners' loan and capital accounts

15 Paul and Mark form a partnership on January 1 of the current year. Paul contributes $50,000 and Mark contributes $100,000 and a building worth $200,000. The building is subject to a mortgage of $40,000, which is assumed by the partnership. Paul and Mark agree to share profits and losses equally. Mark's beginning capital account should be: A) $300,000 B) $280,000 C) $155,000 D) $260,000 E) $150,000

D) $260,000

9 As of December 31 of the current year, the Manhattan Co. partnership had the following capital balances: Profits/Losses are split on a 4:3:2:1 basis, respectively. Adams decided to leave the partnership and was paid $324,000 from the business based on the original contractual agreement. If the goodwill method is applied, what is the total amount of goodwill? A) $50,000 B) $72,000 C) $21,000 D) $80,000 E) $89,000

D) $80,000

6 Which one of the following statements is incorrect regarding a predistribution plan? A) A predistribution plan is developed by simulating a series of losses that are just large enough to eliminate, one at a time, all of the partners' claims to cash. B) A predistribution plan recognizes that the individual capital accounts exhibit differing degrees of sensitivity to losses. C) A predistribution plan serves as a guideline for all future cash payments in a liquidation. D) A predistribution plan is prepared at the end of a liquidation to confirm actual cash distributions. E) A series of absorbed losses forms the basis for the predistribution plan.

D) A predistribution plan is prepared at the end of a liquidation to confirm actual cash distributions.

11 Which of the following is not a characteristic of a partnership? A) Limited life B) Mutual agency C) Unlimited liability D) Double taxation of income E) Ease of formation

D) Double taxation of income

12 The partnership of Paul, Mark, and Jo is liquidating and the ledger shows the following balances: Cash : $80,000 Inventory : 100,000 A/P : 60,000 Paul Cap. - 50% : 40,000 Mark Cap - 25% : 45,000 Jo Cap - 25% : 35,000 If all available cash is distributed immediately: A) Paul, Mark, and Jo would receive $26,667 each B) Paul, Mark, and Jo would receive $6,667 each C) Paul would receive $10,000 and Mark and Jo would each receive $5,000 D) Mark would receive $15,000 and Jo would receive $5,000 E) None of the partners can receive any of the cash until loss of inventory is determined

D) Mark would receive $15,000 and Jo would receive $5,000

4 The following condensed balance sheet is for the partnership of Andrews, Carroll, and Murray, who share profits and losses in the ratio of 6:2:2, respectively. Which partner is most vulnerable to a loss? A) Andrews B) Carroll C) Andrews and Carroll are equally vulnerable D) Murray E) Andrews and Murray are equally vulnerable

D) Murray

14 A guideline for the cash distributions to be made to the partners during a liquidation is called: A) Proposed schedule of liquidation B) Marshalling of assets C) Safe payments D) Predistribution plan. E) Partnership agreement

D) Predistribution plan.

13 The partnership of Paul, Mark, and Jo is liquidating and the ledger shows the following balances: Cash : $80,000 Inventory : 100,000 A/P : 60,000 Paul Cap. - 50% : 40,000 Mark Cap - 25% : 45,000 Jo Cap - 25% : 35,000 If no distributions have been made and the inventory is sold for $80,000, cash should be distributed A) Paul, Mark, and Jo would receive $33,333 each B) Paul, Mark, and Jo would receive $26,667 each C) Paul would receive $50,000 and Mark and Jo would each receive $25,000 D) Paul would receive $40,000, Mark would receive $45,000 and Jo would receive $35,000 E) Paul would receive $30,000, Mark would receive $40,000 and Jo would receive $30,000

E) Paul would receive $30,000, Mark would receive $40,000 and Jo would receive $30,000

11 In accounting for the liquidation of a partnership, cash payments to partners after all creditors' claims have been satisfied, but before final cash distribution, should be according to: A) Profit and loss ratios. B) Capital account balances. C) Relative share of gain or loss on liquidation D) Ratio of capital contributions by partners E) Safe payment computations

E) Safe payment computations

9 Protecting the interests of partnership creditors is a significant duty because: A) the Uniform Partnership Act requires that they be paid in full. B) a partnership never has secured creditors, and therefore they have no recourse for collection. C) the partners are limited in liability to the amount they have contributed. D) partnership creditors are not permitted to receive information about the bankruptcy proceedings, since the partnership is not incorporated. E) the Uniform Partnership Act specifies that they have first priority to the assets held by the partnership at dissolution.

E) the Uniform Partnership Act specifies that they have first priority to the assets held by the partnership at dissolution.