Chapter 14 - Quizlet

Cleary, Wasser and Nolan formed a partnership on January 1, 2013, with investments of $100,000, $150,000 and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary and 40% each for Wasser and Nolan. Net income was $150,000 in 2013 and $180,000 in 2014. Each partner withdrew $1,000 for personal use every month during 2013 and 2014. What was Nolan's share of income for 2013?

$58,000 Interest $20,000 + Salary $0 + Remainder (40%) $38,000 = $58,000

General Legacy

A gift of a fixed amount of money from the general assets of the estate.

demonstrative legacy

A gift or bequest of a specific monetary amount to be paid from the sale of a particular item of property or from some identifiable fund.

Which of the following best describes the articles of partnership agreement? a. The purpose of the partnership and partners' rights and responsibilities are required elements of the articles of partnership b. The articles of partnership are a legal covenant and must be expressed in writing to be valid c. The articles of partnership are an agreement that limits partners' liability to partnership assets d. The articles of partnership are a legal covenant that may be expressed orally or in writing, and forms the central governance for a partnership's operations.

d

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

An advantage to the partnership form of business is that it has unlimited life that is separate from the individual partners.

FALSE

The advantages of the partnership form of business organization, compared to corporations, include Limited liability.

FALSE

The partnership pays taxes on income before it is distributed to the individual partners.

FALSE

Which of the following is not a reason for the popularity of partnerships as a legal form for businesses?

Partnerships can more easily generate significant amounts of capital

The advantages of the partnership form of business organization, compared to corporations, include Ease of raising capital Mutual agency Single taxation Limited liability Difficulty of formation

Single taxation

Partnerships have alternative legal forms including all of the following except:

Subchapter S Partnership.

Which of the following best describes the articles of partnership agreement?

The articles of partnership are a legal covenant that may be expressed orally or in writing, and forms the central governance for a partnership's operations

MaryAnn is apparently bringing goodwill into the partnership, and her capital account will be credited for the appropriate amount. MaryAnn will receive a bonus from the other partners upon her admission to the partnership. Assets of the partnership were overvalued immediately prior to MaryAnn's investment. Based on this information, which of the following best justifies the amount of MaryAnn's investment?

The book value of the partnership's net assets was less than the fair value immediately prior to MaryAnn's investment.

Which of the following statements is correct regarding the admission of a new partner?

The right to participate in management of the business cannot be conveyed without the consent of other existing partners.

specific legacy

a gift by will of a particular article of personal property

How does partnership accounting differ from corporate accounting? a. The matching principle is not considered appropriate for partnership accounting b. Revenues are recognized at a different time by a partnership than is appropriately for a corporation c. Individual capital accounts replace the contributed capital and retained earnings balances found in corporate accounting d. Partnerships report all assets at fair value as of the latest balance sheet date

c

The partnership of Clapton, Seidel, and Thomas was insolvent and will be unable to pay $30,000 in liabilities currently due. What recourse was available to the partnership's creditors?

they may seek remuneration from any partner they choose.

The disadvantages of the partnership form of business organization, compared to corporations, include

unlimited liability for the partners.

The dissolution of a partnership occurs

when there is any change in the individuals who make up the partnership.

Cleary, Wasser and Nolan formed a partnership on January 1, 2013, with investments of $100,000, $150,000 and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary and 40% each for Wasser and Nolan. Net income was $150,000 in 2013 and $180,000 in 2014. Each partner withdrew $1,000 for personal use every month during 2013 and 2014. What was Wasser's capital balance at the end of 2014?

$264,540

The advantages of the partnership form of business organization, compared to corporations, include

single taxation.

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

A partnership requires written Articles of Partnership

The partnership of Clapton, Seidel, and Thomas was insolvent and will be unable to pay $30,000 in liabilities currently due. What recourse was available to the partnership's creditors? A. they must present equal claims to the three partners as individuals. B. they must try obtain a 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 the order of the partners' capital account balances.

D. they may seek remuneration from any partner they choose.

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011. What was Wasser's total share of net income for 2010? A. $63,000. B. $53,000. C. $58,000. D. $29,000. E. $51,000.

A. $63,000.

P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest. If C is to contribute an amount equal to his book value share of the new partnership, how much should C contribute? A. $22,000 B. $20,000 C. $25,000 D. $18,000 E. $10,000

C

A partnership began its first year of operations with the following capital balances: Young, Capital: $143,000 Eaton, Capital: $104,000 Thurman, Capital: $143,000 The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman. Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year. The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively. Each partner withdrew $13,000 per year. Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year. What was Eaton's total share of net loss for the first year

C. $10,400 loss. Net Loss ($26,000###Interest $39,00###Salaries $39,000 = ($104,000) × 20% = Eaton's Portion ($20,800) + Interest $10,400 + Salary $0 = Eaton's Share of Loss ($10,400)

The capital balance for Messalina is $210,000 and for Romulus is $140,000. These two partners share profits and losses 60% (Messalina) and 40% (Romulus). Claudius invests $100,000 in cash in the partnership for a 20% ownership. The bonus method will be used. What are the capital balances for Messalina, Romulus, and Claudius after this investment is recorded?

total account balances = 450,000, Claudius' = 450,000 x 20%= 90,000, 100,000 - 90,000 = 10,000, Messalina = 210,000 + 6,000=$216,000, Romulus = 140,000 + 4,000 = $144,000, Claudius = $90,000

Cleary, Wasser and Nolan formed a partnership on January 1, 2013, with investments of $100,000, $150,000 and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary and 40% each for Wasser and Nolan. Net income was $150,000 in 2013 and $180,000 in 2014. Each partner withdrew $1,000 for personal use every month during 2013 and 2014. What was Wasser's share of income for 2014?

$75,540 Interest $20,100 + Salary $10,000 + Remainder (40%) $45,440 = $75,540

The appropriate format of the January 31, 2015 closing entry for John & Hope Limited Liability Partnership, whose two partners had withdrawn their salaries from the partnership during January is A) John, Drawing XXX Hope, Drawing XXX Salaries Payable XXX B) Salaries Expense XXX John, Drawing XXX Hope, Drawing XXX C) John, Capital XXX Hope Capital XXX Salaries Payable XXX D) John, Capital XXX Hope, Capital XXX John, Drawing XXX Hope, Drawing XXX

D) John, Capital XXX Hope, Capital XXX John, Drawing XXX Hope, Drawing XXX

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 share in profits and losses cannot be sold to a new partner without the consent of other existing partners. D. The right to participate in management of the business can be conveyed without the consent of other existing partners. E. A new partner always pays book value.

D. The right to participate in management of the business cannot be conveyed without the consent of other existing partners.

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

The right of co-ownership in the business property can be transferred to a new partner without the consent of other existing partners

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. What amount should land be recorded on the partnership books?

$45,000

Cleary, Wasser and Nolan formed a partnership on January 1, 2013, with investments of $100,000, $150,000 and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary and 40% each for Wasser and Nolan. Net income was $150,000 in 2013 and $180,000 in 2014. Each partner withdrew $1,000 for personal use every month during 2013 and 2014. What was Wasser's share of income for 2013?

$63,000

Which of the following is not a reason for the popularity of partnerships as a legal form for businesses? A. partnerships may by formed merely by an oral agreement B. partnership can more easily generate significant amounts of capital C. partnerships avoid the double taxation of income that is found in corporations D. in some cases, losses may be used to offset gains for tax purposes

B. partnership can more easily generate significant amounts of capital

20) 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.

1, 2, 3 and 4

A partnership has the following capital balances: Allen = $60,000 Burns = 30,000 Costello = 90,000 Profits and losses are split as follows: Allen (20%), Burns (30%), and Costello (50%). Costello wants to leave the partnership and is paid $100,000 from the business based on provisions in the articles of partnership. If the partnership uses the bonus method, what is the balance of Burn's capital account after Costello withdraws?

100,000 - 90,000 = $10,000 bonus 10,000 x (3/5) = 6,000, 30,000 - 6,000 = $24,000

A partnership began its first year of operations with the following capital balances: Young, Capital: $143,000 Eaton, Capital: $104,000 Thurman, Capital: $143,000 The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman. Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year. The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively. Each partner withdrew $13,000 per year. Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year. What was Thurman's total share of net loss for the first year

A. $3,900 loss. Net Loss ($26,000###Interest $39,00###Salaries $39,000 = ($104,000) × 30% = Thurman's Portion ($31,200) + Interest $14,300 + Salary $13,000 = Thurman's Share of Loss ($3,900)

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. single taxation.

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. Subchapter S Partnership.

Which of the following is not a characteristic of a partnership?

D. A partnership requires written Articles of Partnership.

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. a partnership requires written Articles of Partnership

A partnership began its first year of operations with the following capital balances: Young, Capital: $143,000 Eaton, Capital: $104,000 Thurman, Capital: $143,000 The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman. Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year. The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively. Each partner withdrew $13,000 per year. Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year. What was Young's total share of net income for the second year?

E. $28,080 income.Net Income $52,000 - Interest $32,500 - Salaries $39,000 = ($19,500) × 50% = Young's Portion ($9,750) + Interest $11,830 + Salary $26,000 = Young's Share of Income $28,080

How does partnership accounting differ from corporate accounting?

Individual capital accounts replace the contributed capital and retained earnings balances found in corporate accounting

Which of the following is not a reason for the popularity of partnerships as a legal form for businesses? a. Partnerships may be formed merely by an oral agreement b. Partnerships can more easily generate significant amounts of capital c. Partnerships avoid the double taxation of income that is found in corporation d. In some cases, losses may be used to offset gains for tax purposes

b

A will has the following statement: "I leave $20,000 cash from my savings account in the Central Fidelity Bank to my sister, Angela." This gift is an example of A specific legacy. A general legacy. A residual legacy. A demonstrative legacy.

d. a demonstrative legacy, A demonstrative legacy is the transfer of assets, often cash, from a specified source.

residual legacy

gift of estate which remains after the satisfaction of all claims and all general, specific and demonstrative legacies. In other words, it is the legacy that consists of all the money and property that remains after other amounts of money or property is given to others.

Characteristics of a partnership are governed by the Uniform Partnership Act (UPA).

TRUE

The dissolution of a partnership occurs When there is any change in the individuals who make up the partnership.

TRUE

A partnership began its first year of operations with the following capital balances: Young, Capital: $143,000 Eaton, Capital: $104,000 Thurman, Capital: $143,000 The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman. Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year. The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively. Each partner withdrew $13,000 per year. Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year. What was the balance in Young's Capital account at the end of the second year?

A. $133,380. Beginning $118,300 + Interest $11,830 + Salary $26,000 + Remainder (50%) ($9,750) - Withdrawals $13,000 = Ending Balance $133,380

Jell and Dell were partners with capital balances of $600 and $800 and an income sharing ratio of 2:3. They admitted Zell to 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. Jell $600 + Dell $800 + Goodwill $700 = $2,100/70% = $3,000 × 30% = $900 Cash

A partnership began its first year of operations with the following capital balances: Young, Capital: $143,000 Eaton, Capital: $104,000 Thurman, Capital: $143,000 The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman. Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year. The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively. Each partner withdrew $13,000 per year. Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year. What was Eaton's total share of net income for the second year?

B. $4,160 income.Net Income $52,000 - Interest $32,500 - Salaries $39,000 = ($19,500) × 20% = Eaton's Portion ($3,900) + Interest $8,060 + Salary $0 = Eaton's Share of Income $4,160

Following are the capital account balances for the William, Jennings, and Bryan partnership: William (40% of gains and losses) 220000 Jennings (40%) 160000 Bryan (20%) 110000 Darrow invests $270,000 in cash for a 30 percent ownership interest. The money goes to the original partners. Goodwill is to be recorded. How much goodwill should be recognized, and what is Darrow's beginning capital balance? A. $140,000 and $189,000 B. $410,000 and $270,000 C. $140,000 and $270,000 D. $410,000 and $189,000

B. $410,000 and $270,000 (The implied value of the company is $900,000 ($270,000 ÷ 30%). Because the money is going to the partners rather than into the business, the capital total is $490,000 before realigning the balances. Hence, goodwill of $410,000 is recognized based on the implied value ($900,000 - $490,000). This goodwill is assumed to represent unrealized business gains and is attributed to the original partners according to their profit and loss ratio. They will then each convey 30 percent ownership of the $900,000 partnership to Darrow for a capital balance of $270,000.)

Jerry, a partner in the JSK partnership, begins the year on January 1, 2013 with a capital balance of $20,000. The JSK partnership agreement states that Jerry receives 6% interest on this weighted average capital balance. • On March 1, 2013, when the partnership tax return for 2012 was completed, Jerry's capital account was credited for his share of 2012 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 year 2013 that will go toward his profit distribution for the year? (Use a 360-day year for calculations.)

B. $6,000 Beginning Balance $20,000 + Profit $40,000 ($120,000/3) + Bonus $60,000 - Withdrawals $20,000 = Ending $100,000 × .06 = $6,000

A partnership begins its first year with the following capital balances: Alfred, Capital 50000 Bernard, Capital 60000 Collins, Capital 70000 The articles of partnership stipulate that profits and losses be assigned in the following manner: Each partner is allocated interest equal to 5 percent of the beginning capital balance. Bernard is allocated compensation of $18,000 per year. Any remaining profits and losses are allocated on a 3:3:4 basis, respectively. Each partner is allowed to withdraw up to $5,000 cash per year. Assuming that the net income is $60,000 and that each partner withdraws the maximum amount allowed, what is the balance in Collins capital account at the end of that year? A. $73,500 B. $81,700 C. $70,800 D. $86,700

B. $81,700 ($70,000 + 5% Interest $3,500 + $13,200 [3:3:4 $33,000] - $5,000.00 = $81,700)

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. unlimited liability for the partners.

A partnership began its first year of operations with the following capital balances: Young, Capital: $143,000 Eaton, Capital: $104,000 Thurman, Capital: $143,000 The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman. Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year. The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively. Each partner withdrew $13,000 per year. Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year. What was the balance in Thurman's Capital account at the end of the first year?

C. $126,100. Beginning $143,000 + Interest $14,300 + Salary $13,000 + Remainder (30%) ($31,200) - Withdrawals $13,000 = Ending Balance $126,100

At year-end, the Circle City partnership has the following capital balances: Manning, Capital 130000 Gonzalez, Capital 110000 Clark, Capital 80000 Freeney, Capital 70000 Profits and losses are split on a 3:3:2:2 basis, respectively. Clark decides to leave the partnership and is paid $90,000 from the business based on the original contractual agreement. If instead the partnership uses the bonus method, what is the balance of Manning's capital account after Clark withdraws? A. $100,000 B. $133,750 C. $126,250 D. $130,000

C. $126,250 (Under the bonus method, Clark's excess payment is deducted from the remaining partners' capital accounts according to their relative profit and loss ratios, 3:3:2. Manning's balance is then $126,250 = $130,000 - $3,750.) At year-end, the Circle City partnership has the following capital balances: Manning, Capital Debit 3750 Gonzalez, Capital Debit 3750 Freeney, Capital Debit 2500 Clark, Capital Debit 80000 Cash Credit90000

Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013.

C. $139,420. Beginning $117,000 + Interest $11,700 + Salary $0 + Remainder (20%) $22,720 - Withdrawals $12,000 = $139,420

A partnership began its first year of operations with the following capital balances: Young, Capital: $143,000 Eaton, Capital: $104,000 Thurman, Capital: $143,000 The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman. Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year. The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively. Each partner withdrew $13,000 per year. Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year. What was Thurman's total share of net income for the second year?

C. $19,760 income. Net Income $52,000 - Interest $32,500 - Salaries $39,000 = ($19,500) × 30% = Thurman's Portion ($5,850) + Interest $12,610 + Salary $13,000 = Thurman's Share of Income $19,760

Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Wasser's capital balance at the end of 2013?

C. $264,540. Beginning $201,000 + Interest $20,100 + Salary $10,000 + Remainder (40%) $45,440-Withdrawals $12,000 = $264,540

Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was the total capital balance for the partnership at December 31, 2013?

C. $708,000Cleary $139,420 + Wasser $264,540 + Nolan $304,040 = $708,000

A partnership began its first year of operations with the following capital balances: Young, Capital: $143,000 Eaton, Capital: $104,000 Thurman, Capital: $143,000 The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman. Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year. The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively. Each partner withdrew $13,000 per year. Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year. What was the balance in Thurman's Capital account at the end of the second year?

D. $132,860. Beginning $126,100 + Interest $12,610 + Salary $13,000 + Remainder (30%) ($5,850) - Withdrawals $13,000 = Ending Balance $132,860

Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Nolan's total share of net income for 2013?

D. $70,040. Interest $24,600 + Salary $0 + Remainder (40%) $45,440 = $70,040

A partnership began its first year of operations with the following capital balances: Young, Capital: $143,000 Eaton, Capital: $104,000 Thurman, Capital: $143,000 The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman. Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year. The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively. Each partner withdrew $13,000 per year. Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year. What was the balance in Eaton's Capital account at the end of the first year

D. $80,600.Beginning $104,000 + Interest $10,400 + Salary $0 + Remainder (20%) ($20,800###Withdrawals $13,000 = Ending Balance $80,600

Which of the following best describes the articles of partnership agreement? A. the purpose of the partnership and partners' rights and responsibilities are required elements of the articles of partnership B. the articles of partnership are a legal covenant and must be expressed in writing to be valid C. the articles of partnership are an agreement that limits partners' liability to partnership assets D. the articles of partnership are a legal covenant that may be expressed orally or in writing, and forms the central governance for a partnership's operations

D. the articles of partnership are a legal covenant that may be expressed orally or in writing, and forms the central governance for a partnership's operations

Pat, Jean Lou, and Diane are partners with capital balances of $50,000, $30,000, and $20,000, respectively. These three partners share profits and losses equally. For an investment of $50,000 cash (paid to the business), MaryAnn will be admitted as a partner with a one-fourth interest in capital and profits. Based on this information, which of the following best justifies the amount of MaryAnn's investment? A. MaryAnn will receive a bonus from the other partners upon her admission to the partnership. B. MaryAnn is apparently bringing goodwill into the partnership, and her capital account will be credited for the appropriate amount. C. Assets of the partnership were overvalued immediately prior to MaryAnn's investment. D. The book value of the partnership's net assets was less than the fair value immediately prior to MaryAnn's investment.

D. The book value of the partnership's net assets was less than the fair value immediately prior to MaryAnn's investment.(Mary Ann's investment equals 1/3 of total capital ($50,000 ÷ $150,000). However, she receives only a 1/4 interest capital balance. One explanation for the difference is that the business assets are worth more than book value. To achieve agreement, the net assets could be valued upward to fair value with the adjustment credited to the original partners' capital accounts. Alternatively, a bonus could be credited to the original partners.)

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 share in profits and losses can be sold to a new partner without the consent of other existing partners. D. The right to participate in management of the business can be conveyed without the consent of other existing partners. E. A new partner always pays book value.

D. The right to participate in management of the business can be conveyed without the consent of other existing partners.

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?

Goodwill method

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

I, II, and III.

The partnership contract for Hanes and Jones LLP provides that Hanes is to receive a bonus of 20% of net income 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:

The answer is actually C. 20% × $57,600 = $11,520. Remaining income is $46,080 × 50% = $23,040. So $11,520 + $23,040 = $34,560.

Pat, Jean Lou, and Diane are partners with capital balances of $50,000, $30,000, and $20,000, respectively. These three partners share profits and losses equally. For an investment of $50,000 cash (paid to the business), MaryAnn will be admitted as a partner with a one-fourth interest in capital and profits. Based on this information, which of the following best justifies the amount of MaryAnn s investment?

The book value of the partnership's net assets was less than the fair value immediately prior to MaryAnn's investment

A partnership begins its first year of operations with the following capital balances: Winston, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . $110,000 Durham, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 Salem, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000 According to the articles of partnership, all profits will be assigned as follows: • Winston will be awarded an annual salary of $20,000 with $10,000 assigned to Salem. • The partners will be attributed interest equal to 10 percent of the capital balance as of the first day of the year. • The remainder will be assigned on a 5:2:3 basis, respectively. • Each partner is allowed to withdraw up to $10,000 per year. The net loss for the first year of operations is $20,000 and net income for the subsequent year is $40,000. Each partner withdraws the maximum amount from the business each period. What is the balance in Winston's capital account at the end of the second year?

$102,600

Cleary, Wasser and Nolan formed a partnership on January 1, 2013, with investments of $100,000, $150,000 and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary and 40% each for Wasser and Nolan. Net income was $150,000 in 2013 and $180,000 in 2014. Each partner withdrew $1,000 for personal use every month during 2013 and 2014. What was Cleary's capital balance at the end of 2013?

$117,000 Beginning $100,000 + Interest $10,000 + Salary $0 + Remainder (20%) $19,000 Withdrawals $12,000 =$117,000

At year-end, the Circle City partnership has the following capital balances: Manning, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . $130,000 Gonzalez, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000 Clark, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,000 Freeney, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 Profits and losses are split on a 3:3:2:2 basis, respectively. Clark decides to leave the partnership and is paid $90,000 from the business based on the original contractual agreement.what is the balance of Manning's capital account after Clark withdraws?

$126,250

A partnership has the following capital balances: Arlo (50% of gains and losses) = $120,000 Band (30%) = $95,000 Carlyle (20%) = $100,000 David is going to invest $105,000 into the business to acquire a 30% ownership interest. Goodwill is to be recorded. What will be David's beginning capital balance?

$135,000

William (40% of gains and losses) . . . . . . . . . . . . . . $220,000 Jennings (40%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 160,000 Bryan (20%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,000 Darrow invests $250,000 in cash for a 30 percent ownership interest. The money goes to the business. No goodwill or other revaluation is to be recorded. After the transaction, what isJennings's capital balance?

$171,200

Cleary, Wasser and Nolan formed a partnership on January 1, 2013, with investments of $100,000, $150,000 and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary and 40% each for Wasser and Nolan. Net income was $150,000 in 2013 and $180,000 in 2014. Each partner withdrew $1,000 for personal use every month during 2013 and 2014. What was Wasser's capital balance at the end of 2013?

$201,000

A partnership has the following capital balances: Allen, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $60,000 Burns, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000 Costello, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,000 Profits and losses are split as follows: Allen (20 percent), Burns (30 percent), and Costello (50 percent). Costello wants to leave the partnership and is paid $100,000 from the business based on provisions in the articles of partnership. If the partnership uses the bonus method, what is the balance of Burns's capital account after Costello withdraws?

$24,000

Cleary, Wasser and Nolan formed a partnership on January 1, 2013, with investments of $100,000, $150,000 and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary and 40% each for Wasser and Nolan. Net income was $150,000 in 2013 and $180,000 in 2014. Each partner withdrew $1,000 for personal use every month during 2013 and 2014. What was Nolan's capital balance at the end of 2013?

$246,000

A partnership has the following capital balances: Carpenter (40% of gains and losses) = $140,000 Dane (30%) = $280,000 Elkhart (30%) = $340,000 Krystal is going to pay a total of $240,000 directly to these three partners to acquire a 25% ownership interest from each. Goodwill is to be recorded. What is Dane's capital balance after the transaction?

$255,000

Cleary, Wasser and Nolan formed a partnership on January 1, 2013, with investments of $100,000, $150,000 and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary and 40% each for Wasser and Nolan. Net income was $150,000 in 2013 and $180,000 in 2014. Each partner withdrew $1,000 for personal use every month during 2013 and 2014. What was Cleary's share of income for 2013?

$29,000

A partnership begins its first year with the following capital balances: Alfred, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 50,000 Bernard, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 Collins, Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,000 The articles of partnership stipulate that profits and losses be assigned in the following manner: • Each partner is allocated interest equal to 5 percent of the beginning capital balance. • Bernard is allocated compensation of $18,000 per year. • Any remaining profits and losses are allocated on a 3:3:4 basis, respectively. • Each partner is allowed to withdraw up to $5,000 cash per year. Assuming that the net income is $60,000 and that each partner withdraws the maximum amount allowed, what is the balance in Collins capital account at the end of that year?

$81,700

P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest. If C is to contribute an amount equal to his book value share of the new partnership, how much should C contribute?

(50,000 + 30,000 + 20,000)/ 80% * 20% = $25,000

A partnership has the following capital balances: Comprix (35% of gains and losses) = $150,000 Heflin (40%) = 300,000 Kaplan (25%) = 320,000 Mahar is going to pay a total of $200,000 directly to these three partners to acquire a 25% ownership interest from each. Goodwill is to be recorded. What is Heflin's capital balance after the transaction?

40 x 0.25 = 10% interest from Heflin, Heflin's new interest = 30% , 300,000(40%) x 30% = $225,000

A partnership begins its first year with the following capital balances: Alfred, Capital = $50,000 Bernard, Capital = $60,000 Collins, Capital = $70,000 The articles of partnership stipulate that profits and losses be assigned in the following manner: - each partner is allocated interest equal to 5% of the beginning capital balance - Bernard is allocated compensation of $18,000 per year - any remaining profits and losses are allocated on a 3:3:4 basis, respectively - each partner is allowed to withdraw up to $5,000 cash per year Assuming that the net income is $60,000 and that each partner withdraws the maximum amount allowed, what is the balance in Collins capital account at the end of that year?

70,000 + (5% x 70,000) = 3,500, 70,000 + 3,500 = 73,500, 73,500 - 5,000 = 68,500, (60,000 - 18,000 - 3,500 - 3,000 - 2,500) = 33,000, 33,000(.4) = 13,200, 68,500 + 13,200 = $81,700

Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Cleary's total share of net income for 2013?

A. $34,420. $11,700 + Salary $0 + Remainder (20%) $22,720 = $34,420

Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was the remainder portion of net income allocated to Nolan for 2013?

A. $45,440 $113,600 × 40% = $45,440

A partnership began its first year of operations with the following capital balances: Young, Capital: $143,000 Eaton, Capital: $104,000 Thurman, Capital: $143,000 The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman. Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year. The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively. Each partner withdrew $13,000 per year. Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year. What was Young's total share of net loss for the first year?

B. $11,700 loss. Net Loss ($26,000###Interest $39,00###Salaries $39,000 = ($104,000) × 50% = Young's Portion ($52,000) + Interest $14,300 + Salary $26,000 = Young's Share of Loss ($11,700)

A partnership began its first year of operations with the following capital balances: Young, Capital: $143,000 Eaton, Capital: $104,000 Thurman, Capital: $143,000 The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman. Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year. The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively. Each partner withdrew $13,000 per year. Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year. What was the balance in Young's Capital account at the end of the first year

B. $118,300.Beginning $143,000 + Interest $14,300 + Salary $26,000 + Remainder (50%) ($52,000###Withdrawals $13,000 = Ending Balance $118,300

Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What will be the amount of interest attributed to Cleary for 2014?

B. $13,942 $139,420 × 10% = $13,942

The capital balance for Messalina is $210,000 and for Romulus is $140,000. These two partners share profits and losses 60 percent (Messalina) and 40 percent (Romulus). Claudius invests $100,000 in cash in the partnership for a 20 percent ownership. The bonus method will be used. What are the capital balances for Messalina, Romulus, and Claudius after this investment is recorded? A. $222,000, $148,000, $80,000 B. $216,000, $144,000, $90,000 C. $240,000, $160,000, $100,000 D. $218,000, $142,000, $88,000

B. $216,000, $144,000, $90,000 (Total capital is $450,000 ($210,000 + $140,000 + $100,000) after the new investment. As Claudius' portion is to be 20 percent, the new capital balance would be $90,000 ($450,000 × 20%). Because $100,000 was paid, a bonus of $10,000 is being given to the two original partners based on their profit and loss ratio: Messalina - $6,000 (60%) and Romulus - $4,000 (40%). The increase raises Messalina's capital balance from $210,000 to $216,000 and Romulus's capital balance from $140,000 to $144,000.)

Bishop has a capital balance of $120,000 in a local partnership, and Cotton has a $90,000 balance. These two partners share profits and losses by a ratio of 60 percent to Bishop and 40 percent to Cotton. Lovett invests $60,000 in cash in the partnership for a 20 percent ownership. The goodwill method will be used. What is Cotton's capital balance after this new investment? A. $99,600 B. $126,000 C. $102,000 D. $112,000

C. $102,000 (Total capital is $270,000 ($120,000 + $90,000 + $60,000) after the new investment. However, the implied value of the business based on the new investment is $300,000 ($60,000 ÷ 20%). Thus, goodwill of $30,000 must be recognized with the offsetting allocation to the original partners based on their profit and loss ratio: Bishop - $18,000 (60%) and Cotton $12,000 (40%). The increase raises Cotton's capital from $90,000 to $102,000.)

Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Nolan's capital balance at the end of 2013?

E. $304,040. Beginning $246,000 + Interest $24,600 + Salary $0 + Remainder (40%) $45,440-Withdrawals $12,000 = $304,040

A partnership began its first year of operations with the following capital balances: Young, Capital: $143,000 Eaton, Capital: $104,000 Thurman, Capital: $143,000 The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman. Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year. The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively. Each partner withdrew $13,000 per year. Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year. What was the balance in Eaton's Capital account at the end of the second year?

E. $71,760. Beginning $80,600 + Interest $8,060 + Salary $0 + Remainder (20%) ($3,900) - Withdrawals $13,000 = Ending Balance $71,760

When the hybrid method is used to record the withdrawal of a partner, the partnership

E. revalues assets and liabilities but does not record goodwill.

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. when there is any change in the individuals who make up the partnership.

The Distance Plus partnership has the following capital balances at the beginning of the current year: Tiger (50% of profits and losses) . . . . . . . . . . . . . . . $85,000 Phil (30%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60,000 Ernie (20%) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55,000 a. If Sergio invests $100,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the bonus method is used. b. If Sergio invests $60,000 in cash in the business for a 25 percent interest, what journal entry is recorded? Assume that the bonus method is used.

a. Cash $100,000 Tiger's capital 12,500 Phil's capital 7,500 Ernie's capital 5,000 Sergio's capital 75,000 Thus, Sergio's capital is: $ 75000 (300000*25%). Here there is a capital bonus of $25000 ($100000-$75000) from Sergio to Tiger, Phil and Ernie.This is credited to their capital account on the basis of their profit and loss sharing ratio as follows: b. Cash $60,000 Tiger's capital 2,500 Phil's capital 1,500 Ernie's capital 1,000 Sergio's capital 65,000

For estate tax purposes, what date is used for valuation purposes? Property is valued at the date of death unless the alternate date, which is the date of distribution or six months after death, whichever comes first, is selected. Property is always valued at the date of death. Property is always valued at the date of distribution. Property is valued at the date of death although a reduction is allowed if the value declines within one year of death.

a. Property is valued at the date of death unless the alternate death, which is the date of distribution or 6 months after death, whichever comes first, is selected

The capital balance for Maxwell is $110,000 and for Russel is $40,000. These two partners share profits and losses 70% (Maxwell) and 30% (Russell). Evan invests $50,000 in cash into the partnership for a 30% ownership. The bonus method will be used. What is Russell's capital balance after Evan's investment?

total capital in business = 200,000 Evan's share = 200,000(30%) = 60,000, 50,000 - 60,000 = (10,000) deficit, 10,000 x 30% = 3,000 Russell's share in deficit, 40,000 - 3,000 = $37,000 capital balance for Russell

Bishop has a capital balance of $120,000 in a local partnership, and Cotton has a $90,000 balance. These two partners share profits and losses by a ratio of 60% to Bishop and 40% to Cotton. Lovett invests $60,000 in cash in the partnership for a 20% ownership. The goodwill method will be used. What is Cotton's capital balance after this new investment?

value of partnership = 60,000/20% = $300,000, 300,000 - 270,000 = $30,000 goodwill