Financial Accounting Fundamentals 3rd Edition Test Bank Wild

Financial Accounting Fundamentals  3rd Edition  Test Bank  Wild
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Appendix D
Accounting for Partnerships

True / False Questions

[QUESTION]

1. A partnership has an unlimited life.
Answer: False

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-C1
Topic: Partnership

[QUESTION]

2. A partnership is an unincorporated association of two or more people to pursue a business for profit as co-owners.
Answer: True

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: D-C1
Topic: Partnership

[QUESTION]

3. Mutual agency means each partner can commit or bind the partnership to any contract within the scope of the partnership business.
Answer: True

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: D-C1
Topic: Mutual Agency

[QUESTION]

4. Accounting procedures for all items are the same for both C corporations and S corporations in all aspects.
Answer: False

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-C1
Topic: S Corporation

[QUESTION]

5. Partners in a partnership are taxed on the amounts they withdraw from the partnership, not the partnership income.
Answer: False

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-C1
Topic: Partnership

[QUESTION]

6. Limited liability partnerships are designed to protect innocent partners from malpractice or negligence claims resulting from the acts of another partner.
Answer: True

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-C1
Topic: Limited Liability Partnership

[QUESTION]

7. A partnership cannot use salary allowances or interest allowances if it uses the stated ratio method to allocate income and losses to the partners.
Answer: False

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-C1
Topic: Partnership

[QUESTION]

8. In a limited partnership the general partner has unlimited liability.
Answer: True

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-C1
Topic: Limited Partnership

[QUESTION]

9. Partner return on equity can be used by each partner to help decide whether additional investment or withdrawal of resources is best for that partner.
Answer: True

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-A1
Topic: Partner Return On Equity

[QUESTION]

10. Benson is a partner in B&D Company. Bensons share of the partnership income is $18,600 and her average partnership equity is $155,000. Her partner return on equity equals 8.33.
Answer: False
Feedback: $18,600/$155,000 = 12%

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-A1
Topic: Partner Return On Equity

[QUESTION]

11. When partners invest in a partnership, their capital accounts are credited for the amount invested.
Answer: True

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P1
Topic: Debit
Topic: Credit
Topic: Partner Investment

[QUESTION]

12. Partners withdrawals are credited to their separate withdrawals accounts.
Answer: False

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P1
Topic: Debit
Topic: Credit
Topic: Partner Withdrawal

[QUESTION]

13. Partners can invest both assets and liabilities into a partnership.
Answer: True

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P1
Topic: Partner Investment

[QUESTION]

14. The withdrawals account of each partner is closed to retained earnings at the end of the accounting period.
Answer: False

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P1
Topic: Partner Withdrawal

[QUESTION]

15. In closing the accounts at the end of a period, the partners capital accounts are credited for their share of the partnership loss or debited for their share of the partnership net income.
Answer: False

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P1
Topic: Debit
Topic: Credit
Topic: Partner Income
Topic: Partner Loss

[QUESTION]

16. In the absence of a partnership agreement, the law says that income of a partnership will be shared equally by the partners.
Answer: True

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P2
Topic: Partner Income

[QUESTION]

17. Salary allowances are reported as salaries expense on a partnership income statement.
Answer: False

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P2
Topic: Salary Allowance

[QUESTION]

18. The statement of partners equity shows the beginning balance in retained earnings, plus investments, less withdrawals, the income or loss, and the ending balance in retained earnings.
Answer: False

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P2
Topic: Statement of Partners Equity

[QUESTION]

19. The equity section of the balance sheet of a partnership can report the separate capital account balances of each partner.
Answer: True

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P2
Topic: Balance Sheet

[QUESTION]

20. If partners devote their time and services to their partnership, their salaries are expenses on the income statement.
Answer: False

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P2
Topic: Salary Allowance

[QUESTION]

21. If the partners agree on a formula to share income and say nothing about losses, then the losses are shared equally.
Answer: False

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P2
Topic: Partner Loss

[QUESTION]

22. Assume that the S & B partnership agreement gave Steely 60% and Breck 40% of partnership income and losses. The partnership recorded a loss of $27,000 in the current period. Steelys share of the loss equals $16,200 and Brecks share equals $10,800.
Answer: True

Feedback: Steely .6 x $27,000 = $16,200
Breck .4 x $27,000 = $10,800

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P2
Topic: Partner Loss

[QUESTION]

23. When a partner leaves a partnership, the present partnership ends.
Answer: True

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P3
Topic: Withdrawal Of Partner

[QUESTION]

24. To buy into an existing partnership, the new partner must contribute cash.
Answer: False

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P3
Topic: Admission Of Partner

[QUESTION]

25. When a partner leaves a partnership, the present partnership ends, but the business can still continue to operate.
Answer: True

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P3
Topic: Withdrawal Of Partner

[QUESTION]

26. Assets invested by a partner into a partnership remain the property of the individual partner.
Answer: False

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P3
Topic: Partner Investment

[QUESTION]

27. Admitting a partner into a partnership by accepting assets is a personal transaction between one or more current partners and the new partner.
Answer: False

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P3
Topic: Admission Of Partner
Topic: Partner Investment

[QUESTION]

28. When the current value of a partnership is greater than the recorded amounts of equity, the current partners usually require any new partner to pay a bonus for the privilege of joining.
Answer: True

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P3
Topic: Admission Of Partner

[QUESTION]

29. When a partner leaves a partnership, the withdrawing partner is entitled to a bonus if the recorded equity is overstated.
Answer: False

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P3
Topic: Withdrawal Of Partner

[QUESTION]

30. When a partnership is liquidated, its business is ended.
Answer: True

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: D-P4
Topic: Liquidation

[QUESTION]

31. A capital deficiency exists when all partners have a credit balance in their capital accounts.
Answer: False

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: D-P4
Topic: Capital Deficiency
Topic: Debit
Topic: Credit

[QUESTION]

32. A capital deficiency can arise from liquidation losses, excessive withdrawals before liquidation, or recurring losses in prior periods.
Answer: True

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P4
Topic: Capital Deficiency

[QUESTION]

33. If a partner is unable to cover a deficiency and the other partners absorb the deficiency, then the partner with the deficiency is thus relieved of all liability.
Answer: False

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P4
Topic: Capital Deficiency

[QUESTION]

34. If at the time of partnership liquidation, a partner has a $5,000 capital deficiency and pays the partnership $5,000 out of personal assets to cover the deficiency, then that partner is entitled to share in the final distribution of cash.
Answer: False

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P4
Topic: Capital Deficiency

Multiple Choice Questions

[QUESTION]

35. An unincorporated association of two or more persons to carry on a business for profit as co-owners is a(n):
A. Partnership
B. Proprietorship
C. Contractual company
D. Mutual agency
E. Voluntary organization

Answer: A

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: D-C1
Topic: Partnership

[QUESTION]

36. Which of the following best lists the disadvantages of a partnership:
A. Unlimited life and mutual agency.
B. Mutual agency and limited liability.
C. Unlimited liability and unlimited life.
D. Limited Life and limited liability.
E. Limited life, mutual agency, and unlimited liability are all disadvantages of a partnership

Answer: E

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-C1
Topic: Partnership

[QUESTION]

37. A partnership agreement:
A. Is not binding unless it is in writing.
B. Is the same as a limited liability partnership.
C. Is binding even if it is not in writing.
D. Does not generally address the issue of the rights and duties of the partners.
E. Is also called the articles of incorporation.

Answer: C

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-C1
Topic: Partnership

[QUESTION]

38. Mutual agency means
A. Creditors can apply their claims to partners personal assets.
B. Partners are taxed on partnership withdrawals.
C. All partners must agree before the partnership can act.
D. The partnership has a limited life.
E. A partner can commit or bind the partnership in any contract within the scope of the partnership business.

Answer: E

Blooms Taxonomy: Remember
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 1 Easy
Learning Objective: D-C1
Topic: Mutual Agency

[QUESTION]

39. A partnership that has two classes of partners, general and limited, where the limited partners have no personal liability beyond the amounts they invest in the partnership and no active role in the partnership except as specified in the partnership agreement, is a:
A. Mutual agency partnership
B. Limited partnership
C. Limited liability partnership
D. General partnership
E. Limited liability corporation

Answer: B

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-C1
Topic: Limited Partnership

[QUESTION]

40. A partnership designed to protect innocent partners from malpractice or negligence claims resulting from acts of another partner is a:
A. Partnership
B. Limited partnership
C. Limited liability partnership
D. General partnership
E. Limited liability corporation

Answer: C

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-C1
Topic: Limited Liability Partnership

[QUESTION]

41. Renee Jackson is a partner in Sports Promoters. Her beginning partnership capital balance for the current year is $55,000 and her ending partnership capital balance for the current year is $62,000. Her share of this years partnership income was $5,250. What is her partner return on equity?
A. 8.47%
B. 8.97%
C. 9.54%
D. 1047%
E. 1060%

Answer: B

Feedback: $5,250/[($55,000 + $62,000)/2] = 8.97%

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-A1
Topic: Partner Return On Equity

[QUESTION]
42. Jimmy Hayes is a partner in Sports Promoters. His beginning partnership capital balance for the current year $65,000 and his ending partnership capital balance for the current year is $62,000. His share of this years partnership income was $5,250. What were his withdrawals for the period?
A. $8,250
B. $3,000
C. $2,250
D. $0
E. $5,250

Answer: A

Feedback: $65,000+$5,250-$62,000 = $8,250

Blooms Taxonomy: Apply
AACSB: Analytic
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: D-P2
Topic: Partner Withdrawal

[QUESTION]

43. Web Services is organized as a limited partnership, with David White as one of its partners. Davids capital account began the year with a balance of $45,000. During the year, Davids share of the partnership income was $7,500 and David received $4,000 in distributions from the partnership. What is Davids partner return on equity?
A. 7.8%
B. 8.9%
C. 15.4%
D. 16.0%
E. 16.7%

Answer: D

Feedback: Ending partnership equity: $45,000 + $7,500 $4,000 = $48,500
Partner return on equity: $7,500/[($45,000 + $48,500)/2] = 16%

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-A1
Topic: Partner Return On Equity

[QUESTION]

44. Web Services is organized as a limited partnership, with Wren Littlefeather as one of its partners. Wrens capital account began the year with a balance of $87,000. During the year, Wrens share of the partnership income was $60,000 and she received $25,000 in distributions from the partnership. What is Wrens partner return on equity?
A. 57.42%
B. 49.18%
C. 68.97%
D. 33.49%
E. 40.23%

Answer: A

Feedback: Ending partnership equity = $87,000 + $60,000 $25,000 = $122,000
Partner return on equity: $60,000/[($87,000 + $122,000)/2] = 57.42%

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-A1
Topic: Partner Return On Equity

[QUESTION]

45. Elaine Valero is a limited partner in a marketing and design firm. During the previous year her return on partnership equity was 14%. During this time, the beginning and ending balances in her capital account were $210,000 and $230,000 respectively. What was Elaines partnership net income for this year?
A. $29,400.00
B. $30,800.00
C. $32,200.00
D. $1,500,000.00
E. $1,642,857.14

Answer: B

Feedback: Net income = 14% x $220,000 = $30,800

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-A1
Topic: Partner Return On Equity

[QUESTION]

46. Chad Forrester is a limited partner in a sports management firm. During the previous year his return on partnership equity was 16%. The beginning balance in his capital account was $450,000 and his partnership net income for this year was $75,000. What was the balance in Chads capital account at the end of last year?
A. $525,000
B. $937,500
C. $487,500
D. $468,750
E. $37,500

Answer: C

Feedback: Average equity: $75,000/.16 = $468,750
($450,000 + Chads capital)/2 = $468,750
Chads capital = $937,500 $450,000 = $487,500

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-A1
Topic: Partner Return On Equity

[QUESTION]

47. Partnership accounting:
A. Is the same as accounting for a sole proprietorship.
B. Is the same as accounting for a corporation.
C. Is the same as accounting for a sole proprietorship, except that separate capital and withdrawal accounts are kept for each partner.
D. Is the same as accounting for an S corporation.
E. Is the same as accounting for a corporation, except that retained earnings is used to keep track of partners withdrawals.

Answer: C

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P1
Topic: Partnership

[QUESTION]

48. Partners withdrawals of assets are:
A. Credited to their withdrawals accounts.
B. Debited to their withdrawals accounts.
C. Credited to their retained earnings.
D. Debited to their retained earnings.
E. Debited to their asset accounts.

Answer: B

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P3
Topic: Partner Withdrawal
Topic: Debit
Topic: Credit

[QUESTION]

49. The withdrawals account of each partner is:
A. Closed to that partners capital account with a credit.
B. Closed to that partners capital account with a debit.
C. A permanent account that is not closed.
D. Credited with that partners share of net income.
E. Debited with that partners share of net loss.

Answer: B

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P3
Topic: Partner Withdrawal
Topic: Debit
Topic: Credit

[QUESTION]

50. B. Tanner contributed $14,000 in cash plus office equipment valued at $7,000 to the JT Partnership. The journal entry to record the transaction for the partnership is:
A.

Cash 14,000
Office equipment. 7,000
B. Tanner, Capital 21,000

B.

Cash 14,000
Office equipment. 7,000
JT Partnership, Capital 21,000

C.

JT Partnership, Capital 21,000
B. Tanner, Capital 21,000

D.

Partnership Assets 21,000
JT Partnership, Capital.. 21,000

E.

B. Tanner, Capital 21,000
JT Partnership, Capital.. 21,000

Answer: A

Blooms Taxonomy: Analyze
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P1
Topic: Partner Investment
Topic: Debit
Topic: Credit

[QUESTION]

51. S. Reising contributed $48,000 in cash plus equipment valued at $73,000 to the Reising Construction Partnership. The journal entry to record the transaction for the partnership is:
A.

Cash. 48,000
Equipment. 73,000
S. Reising, Capital 121,000

B.

Cash. 48,000
Equipment. 73,000
Reising Construction Partnership, Capital.. 121,000

C.

Reising Construction Partnership. 121,000
S. Reising, Capital 121,000

D.

S. Reising, Capital 121,000
Reising Construction Partnership, Capital.. 121,000

E.

Cash. 48,000
Equipment. 73,000
Common Stock.. 121,000

Answer: A

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P1
Topic: Debit
Topic: Credit
Topic: Partner Investment

[QUESTION]

52. S. Reising contributed $48,000 in cash plus equipment valued at $73,000 to the Reising Construction Partnership. The equipment had a book value of $65,000. The journal entry to record the transaction for the partnership would include a:
A. Debit to Equipment for $73,000.
B. Debit to Equipment for $65,000.
C. Credit to S. Reising, Capital for $113,000.
D. Credit to Common Stock for $121,000
E. Credit to the Gain on Asset for $8,000.

Answer: A

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P1
Topic: Debit
Topic: Credit
Topic: Partner Investment

[QUESTION]

53. Chen and Wright are forming a partnership. Chen will invest a building that currently is being used by another business owned by Chen. The building has a market value of $90,000. Also, the partnership will assume responsibility for a $30,000 note secured by a mortgage on that building. Wright will invest $50,000 cash. For the partnership, the amounts to be recorded for the building and for Chens Capital account are:
A. Building, $90,000 and Chen, Capital, $90,000.
B. Building, $60,000 and Chen, Capital, $60,000.
C. Building, $60,000 and Chen, Capital, $50,000.
D. Building, $90,000 and Chen, Capital, $60,000.
E. Building, $60,000 and Chen, Capital, $90,000.

Answer: D

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P1
Topic: Debit
Topic: Credit
Topic: Partner Investment

[QUESTION]

54. Collins and Farina are forming a partnership. Collins is investing a building that has a market value of $80,000. However, the building carries a $56,000 mortgage that will be assumed by the partnership. Farina is investing $20,000 cash. The balance of Collins Capital account will be:
A. $80,000
B. $24,000
C. $56,000
D. $44,000
E. $60,000

Answer: B

Feedback: $80,000 $56,000 = $24,000

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P1
Topic: Partner Investment

[QUESTION]

55. Collins and Farina are forming a partnership. Collins is investing a building that has a market value of $80,000 and a book value of $65,000. However, the building carries a $56,000 mortgage that will be assumed by the partnership. Farina is investing $20,000 cash. Total capital in the partnership will be:
A. $80,000
B. $24,000
C. $56,000
D. $44,000
E. $60,000

Answer: D

Feedback: $80,000 + $20,000 $56,000 = $44,000

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P1
Topic: Partner Investment

[QUESTION]

56. Miller and Reising formed a partnership. Miller contributed land valued at $90,000 and a building valued at $115,000. Reising contributed $90,000 cash. In addition, the partnership assumed responsibility for Millers $85,000 mortgage payable associated with the land and building. What are the balances of the partners capital accounts after these transactions have been recorded?
A. Miller: $120,000; Reising: $90,000.
B. Miller: $205,000; Reising: $90,000.
C. Miller: $105,000; Reising: $105,000.
D. Miller: $90,000; Reising: $120,000.
E. Miller: $90,000; Reising: $205,000.

Answer: A

Feedback: Miller: $90,000 + $115,000 $85,000 = $120,000

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P1
Topic: Partner Investment

[QUESTION]

57. In the absence of a partnership agreement, the law says that income and loss should be allocated based on:
A. A fractional basis.
B. The ratio of capital investments.
C. Salary allowances.
D. Equal shares.
E. Interest allowances.

Answer: D

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P2
Topic: Partner Income
Topic: Partner Loss

[QUESTION]

58. If a partnership contract provides for interest at 10% annually on each partners investment, the interest:
A. Is ignored when earnings are not sufficient to pay interest.
B. Is an allowance that can make up for unequal capital contribution.
C. Is an expense of the business.
D. Must be paid because the partnership contract has unlimited life.
E. Legally becomes a liability of the general partner.

Answer: B

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P2
Topic: Interest Allowance

[QUESTION]

59. Rice, Hepburn and DiMarco formed a partnership with Rice contributing $60,000, Hepburn contributing $50,000, and DiMarco contributing $40,000. Their partnership agreement called for the income (loss) division to be based on the ratio of capital investments. If the partnership had income of $75,000 for its first year of operation, what amount of income (rounded to the nearest dollar) would be credited to DiMarcos capital account?
A. $20,000
B. $25,000
C. $30,000
D. $40,000
E. $75,000

Answer: A

Feedback: $75,000 x [$40,000/($60,000 + $50,000 + $40,000)] = $20,000

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P2
Topic: Partner Income

[QUESTION]

60. Blaser, Lukins, and Franko formed a partnership with Blaser contributing $160,000, Lukins contributing $520,000, and Franko contributing $240,000. Their partnership agreement called for the income (loss) division to be based on the ratio of capital investments. If the partnership had income of $275,000 for its first year of operation, what amount of income (rounded to the nearest dollar) would be credited to Frankos capital account?
A. $50,000
B. $240,000
C. $91,667
D. $71,739
E. $275,000

Answer: D

Feedback: $275,000 x [$240,000/($160,000 + $520,000 + $240,000)] = $71,739

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P2
Topic: Partner Income

[QUESTION]

61. Shelby and Mortonson formed a partnership with capital contributions of $300,000 and $400,000, respectively. Their partnership agreement calls for Shelby to receive a $60,000 per year salary. Also, each partner is to receive an interest allowance equal to 10% of a partners beginning capital investments. The remaining income or loss is to be divided equally. If the net income for the current year is $135,000, then Shelby and Mortonsons respective shares are:
A. $67,500; $67,500
B. $92,500; $42,500
C. $57,857; $77,143
D. $90,000; $40,000
E. $35,000; $100,000
Answer: B

Shelby Mortonson Total
Net income $135,000
Salary allowance $60,000 (60,000)
Interest allowance 30,000 40,000 (70,000)
Balance of income 5,000
Balance divided equally 2,500 2,500 (5,000)
Total $92,500 $42,500 $ 0

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P2
Topic: Partner Income

[QUESTION]

62. Shelby and Mortonson formed a partnership with capital contributions of $300,000 and $400,000, respectively. Their partnership agreement calls for Shelby to receive a $60,000 per year salary. Also, each partner is to receive an interest allowance equal to 10% of a partners beginning capital investments. The remaining income or loss is to be divided equally. If the net income for the current year is $125,000, then Shelby and Mortonsons respective shares are:
A. $62,500; $62,500
B. $90,000; $35,000
C. $87,500; $37,500
D. $85,000; $40,000
E. $92,000; $33,000

Answer: C

Feedback:

Shelby Mortonson Total
Net income $125,000
Salary allowance $60,000 (60,000)
Interest allowance 30,000 40,000 (70,000)
Balance of loss (5,000)
Balance divided equally (2,500) (2,500) 5,000
Total $87,500 $37,500 $ 0

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P2
Topic: Partner Loss
Topic: Partner Income

[QUESTION]

63. Which of the following statements is true?
A. Partners are employees of the partnership.
B. Salaries to partners are expenses on the partnership income statement.
C. Salary allowances usually reflect the relative value of services provided by partners.
D. Salary allowances are expenses.
E. Interest allowances are expenses.

Answer: C

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P2
Topic: Salary Allowance
Topic: Interest Allowance

[QUESTION]

64. Nguyen invested $100,000 and Hansen invested $200,000 in a partnership. They agreed to share income and loss by allowing a $60,000 per year salary allowance to Nguyen and a $40,000 per year salary allowance to Hansen, plus an interest allowance on the partners beginning-year capital investments at 10%, with the balance to be shared equally. Under this agreement, the shares of the partners when the partnership earns a $105,000 in income are:
A. $52,500 to Nguyen; $52,500 to Hansen.
B. $35,000 to Nguyen; $70,000 to Hansen.
C. $57,500 to Nguyen; $47,500 to Hansen.
D. $42,500 to Nguyen; $62,500 to Hansen.
E. $70,000 to Nguyen; $60,000 to Hansen.

Answer: C

Nguyen Hansen Total
Net income $105,000
Salary allowance $60,000 $40,000 (100,000)
Interest allowance 10,000 20,000 (30,000)
Balance of income (25,000)
Balance divided equally (12,500) (12,500) 25,000
Total $57,500 $47,500 $ 0

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P2
Topic: Partner Income
Topic: Partner Loss

[QUESTION]

65. During 2013, Carpenter invested $75,000 and DiAngelo invested $90,000 in a partnership. They agreed to share income and loss by allowing a $40,000 per year salary allowance to Carpenter and a $42,000 per year salary allowance to DiAngelo, plus an interest allowance on the partners beginning-year capital investments at 8%, with the balance to be shared equally. Under this agreement, if the partnership earns net income of $300,000 during 2013 the income allocated to each partner is:
A. $40,000 to Carpenter; $42,000 to DiAngelo.
B. $148,400 to Carpenter; $151,600 to DiAngelo.
C. $43,200 to Carpenter; $45,360 to DiAngelo.
D. $150,000 to Carpenter; $150,000 to DiAngelo.
E. $105,720 to Carpenter; $105,720 to DiAngelo.

Answer: B

Carpenter DiAngelo Total
Net income $300,000
Salary allowance $40,000 $42,000 (82,000)
Interest allowance 6,000 7,200 (13,200)
Balance of income 204,800
Balance divided equally 102,400 102,400 (204,800)
Total $148,400 $151,600 $ 0

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P2
Topic: Partner Income
Topic Interest Allowance

[QUESTION]

66. During 2013, Schmidt invested $75,000 and Baldwin invested $90,000 in a partnership. They agreed that Baldwin would get a salary allowance of $30,000 and they would share any remaining income or loss equally. During 2013 the partnership earned net income of $300,000 and they each withdrew $12,000 from the partnership. Which of the following statements is correct?
A. Schmidt Capital at the end of 2013 is $213,000.
B. Schmidt Capital at the end of 2013 is $210,000.
C. Baldwin Capital at the end of 2013 is $243,000.
D. Baldwin Capital at the end of 2013 is $255,000.
E. Total Capital at the end of 2013 has increased by $300,000.

Answer: C

Feedback:

Schmidt Baldwin Total
Net income 2013 $300,000
Salary allowance $30,000 (30,000)
Balance of income 270,000
Balance divided equally $135,000 135,000 (270,000)
2013 income allocated $135,000 $165,000 $ 0
Initial investment 75,000 90,000
Withdrawals (12,000) (12,000)
Ending capital balances $198,000 $243,000

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P2
Topic: Partner Income

[QUESTION]

67. When a partner is added to a partnership:
A. The previous partnership ends.
B. The underlying business operations ends.
C. The underlying business operations must close and then reopen.
D. The partnership must continue.
E. The partnership equity always increases.

Answer: A

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P3
Topic: Admission Of Partner

[QUESTION]

68. A partnership recorded the following journal entry:

Cash.. 70,000
B. Tanner, Capital. 10,000
R. Jackson, Capital 10,000
H. Rivera, Capital 90,000

This entry reflects:
A. Acceptance of a new partner who invests $70,000 and receives a $20,000 bonus.
B. Withdrawal of a partner who pays a $10,000 bonus to each of the other partners.
C. Addition of a partner who pays a bonus to each of the other partners.
D. Additional investment into the partnership by Tanner and Jackson.
E. Withdrawal of $10,000 each by Tanner and Jackson upon the admission of a new partner.

Answer: A

Blooms Taxonomy: Analyze
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P3
Topic: Admission Of Partner
Topic: Debit
Topic: Credit

[QUESTION]

69. Groh and Jackson are partners. Grohs capital balance in the partnership is $64,000 and Jacksons capital balance is $61,000. Groh and Jackson have agreed to share equally in income or loss. Groh and Jackson agree to accept Block with a 20% interest. Block will invest $35,000 in the partnership. The bonus that is granted to Groh and Jackson equals:
A. $1,500 each.
B. $1,875 each.
C. $3,750 each.
D. $1,920 to Groh; $1,830 to Jackson.
E. $0, because Groh and Jackson actually grant a bonus to Block.

Answer: A

Feedback: Total partnership equity = $64,000 + $61,000 + $35,000 = $160,000
Blocks equity = 20% x 160,000 = $32,000
Bonus to existing partners = $35,000 $32,000 = $3,000, or $1,500 each

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P3
Topic: Admission Of Partner
Topic: Partner Bonus

[QUESTION]

70. Groh and Jackson are partners. Grohs capital balance in the partnership is $64,000 and Jacksons capital balance is $61,000. Groh and Jackson have agreed to share equally in income or loss. Groh and Jackson agree to accept Block with a 25% interest. Block will invest $35,000 in the partnership. The bonus that is granted to Block equals:
A. $5,000.
B. $2,500.
C. $6,667.
D. $3,333.
E. $0, because Block must actually grant a bonus to Groh and Jackson.

Answer: A
Feedback: Total partnership equity = $64,000 + $61,000 + $35,000 = $160,000
Blocks equity = 25% x 160,000 = $40,000
Bonus to Block = $40,000 $35,000 = $5,000

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P3
Topic: Admission Of Partner
Topic: Partner Bonus

[QUESTION]

71. Groh and Jackson are partners. Grohs capital balance in the partnership is $64,000 and Jacksons capital balance is $61,000. Groh and Jackson have agreed to share equally in income or loss. Groh and Jackson agree to accept Block with a 25% interest. Block will invest $35,000 in the partnership. The capital account balances after admission of Block are:
A. Block $35,000, Groh $64,000, and Jackson $61,000.
B. Block $35,000, Groh $66,500, and Jackson $63,500.
C. Block $40,000, Groh $64,000, and Jackson $61,000.
D. Block $40,000, Groh $61,500, and Jackson $58,500.
E. Block $40,000, Groh $66,500, and Jackson $63,500.

Answer: D

Feedback: Total partnership equity = $64,000 + $61,000 + $35,000 = $160,000
Blocks equity = 25% x 160,000 = $40,000
Bonus to Block = $40,000 $35,000 = $5,000 (or $2,500 each from existing partners)
Groh capital = $64,000 $2,500 = $61,500
Jackson = $61,000 $2,500 = $58,500

Blooms Taxonomy: Analyze
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P3
Topic: Admission Of Partner
Topic: Partner Bonus

[QUESTION]

72. Tanner, Schmidt, and Hayes are partners with capital account balances of $100,000, $120,000, and $96,000 respectively. They share profits and losses in a 3:4:3 ratio. Schmidt wishes to leave the partnership and will be paid $125,000. What are the remaining capital account balances after Schmidt withdraws?
A. Tanner $95,500; Hayes $95,500.
B. Tanner $102,500; Hayes $98,500.
C. Tanner $100,000; Hayes $96,000.
D. Tanner $97,500; Hayes $93,500.
E. Tanner $100,000; Hayes $91,000.

Answer: D

Feedback:
Schmidt payout $125,000 capital $120,000 = $5,000 bonus
$5,000 bonus to be split equally from capital of Tanner and Hayes
Tanner Capital $100,000 $2,500 = $97,000
Hayes Capital $96,000 $2,500 = $93,000

Blooms Taxonomy: Apply
AACSB: Analytic
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
Difficulty: 3 Hard
Learning Objective: D-P3
Topic: Withdrawal Of Partner
Topic: Partner Bonus

[QUESTION]

73. Force and Zabala are partners. Forces capital balance in the partnership is $98,000 and Zabala s capital balance is $53,000. Force and Zabala have agreed to share equally in income or loss. Force and Zabala agree to accept Burns with a 25% interest. Burns will invest $56,000 in the partnership. The total bonus that is granted to the existing partners equals:
A. $6,500.
B. $9,125.
C. $2,125.
D. $4,250.
E. $0, because Force and Zabala actually grant a bonus to Burns.

Answer: D

Feedback: Total partnership equity = $98,000 + $53,000 + $56,000 = $207,000
Burns equity = 25% x $207,000 = $51,750
Bonus to existing partners = $56,000 $51,750 = $4,250

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P3
Topic: Admission Of Partner
Topic: Partner Bonus

[QUESTION]

74. Force and Zabala are partners. Forces capital balance in the partnership is $98,000 and Zabala s capital balance is $53,000. Force and Zabala have agreed to share equally in income or loss. Force and Zabala agree to accept Burns with a 25% interest. Burns will invest $56,000 in the partnership. Which of the following statements is correct?
A. Forces capital balance after the admission of Burns is $50,875.
B. Burns capital after admission is $51,750.
C. Zabalas capital after the admission of Burns is $98,000.
D. Burns capital after admission is $56,000.
E. Forces capital balance after the admission of Burns is $53,000.

Answer: B

Feedback: Total partnership equity = $98,000 + $53,000 + $56,000 = $207,000
Burns equity = 25% x $207,000 = $51,750
Bonus to existing partners = $56,000 $51,750 = $4,250 ($2,125 each)
Force Capital = $98,000 + $2,125 = $100,125
Zabala Capital = $53,000 + $2,125 = $55,125

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P3
Topic: Admission Of Partner
Topic: Partner Bonus

[QUESTION]

75. Brown and Rubix are partners. Browns capital balance in the partnership is $73,000 and
Rubixs capital balance is $62,000. Brown and Rubix have agreed to share equally in income or loss. Brown and Rubix agree to accept Cabela with a 20% interest. Cabela will invest $41,500 in the partnership. The bonus that is granted to Brown and Rubix equals:
A. $3,100 each.
B. $6,200 each.
C. $35,300 in total.
D. $41,500 in total.
E. $0, because Brown and Rubix actually grant a bonus to Cabela.

Answer: A
Feedback: Total partnership equity = $73,000 + $62,000 + $41,500 = $176,500
Cabelas equity = 20% x $176,500 = $35,300
Bonus to existing partners = $41,500 $35,300 = $6,200, or $3,100 each

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P3
Topic: Admission Of Partner
Topic: Partner Bonus

[QUESTION]

76. When a partnership is liquidated, which of the following is not true?
A. Noncash assets are converted to cash.
B. Any gain or loss on liquidation is allocated to the partners capital accounts using the income and loss sharing ratio.
C. Liabilities are paid or settled.
D. Any remaining cash is distributed to the partners based on their capital balances.
E. Any remaining cash is distributed to partners in accordance with the income- and loss-sharing ratio.

Answer: E

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P4
Topic: Liquidation

[QUESTION]

77. A capital deficiency means that:
A. The partnership has a loss.
B. The partnership has more liabilities than assets.
C. At least one partner has a debit balance in his/her capital account.
D. At least one partner has a credit balance in his/her capital account.
E. The partnership has been sold at a loss.

Answer: C

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P4
Topic: Capital Deficiency
Topic: Debit
Topic: Credit

[QUESTION]

78. When a partner is unable to pay a capital deficiency:
A. The partner must take out a loan to cover the deficient balance.
B. The deficiency is absorbed by the remaining partners.
C. The partnership ends.
D. The deficient partner has no personal liability to pay the deficiency.
E. The partnership must be liquidated.

Answer: B

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-P4
Topic: Capital Deficiency

[QUESTION]

79. McCartney, Harris, and Hussin are dissolving their partnership. Their partnership agreement allocates income and losses equally among the partners. The current periods ending capital account balances are McCartney, $15,000, Harris, $15,000, Hussin, $(2,000). After all the assets are sold and liabilities are paid, but before any contributions to cover any deficiencies, there is $28,000 in cash to be distributed. Hussin pays $2,000 to cover the deficiency in his account. The general journal entry to record the final distribution would be:
A.
McCartney, Capital 15,000
Harris, Capital.. 15,000
Cash.. 30,000

B.
McCartney, Capital 14,000
Harris, Capital.. 14,000
Cash.. 28,000

C.
McCartney, Capital 15,000
Harris, Capital.. 15,000
Hussin, Capital 2,000
Cash.. 28,000

D.
Cash. 15,000
Hussin, Capital.. 15,000
McCartney, Capital. 2,000
Harris, Capital 28,000

E.
McCartney, Capital 9,334
Harris, Capital.. 9,333
Hussin, Capital. 9,333
Cash.. 28,000

Answer: A
Feedback:
Capital
Cash McCartney Harris Hussin
$28,000 $15,000 $15,000 $(2,000)
Contribution by Hussin 2,000 2,000
Allocate cash ( 30,000) ( 15,000) ( 15,000) 0
Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P4
Topic: Capital Deficiency
Topic: Debit
Topic: Credit
Topic: Liquidation

[QUESTION]

80. McCartney, Harris, and Hussin are dissolving their partnership. Their partnership agreement allocates each partner 1/3 of all income and losses. The current periods ending capital account balances are McCartney, $13,000; Harris, $13,000; and Hussin, $(2,000). After all assets are sold and liabilities are paid, there is $24,000 in cash to be distributed. Hussin is unable to pay the deficiency. The journal entry to record the distribution should be:
A.
McCartney, Capital 8,000
Harris, Capital.. 8,000
Hussin, Capital. 8,000
Cash.. 24,000

B.
McCartney, Capital 12,000
Harris, Capital.. 12,000
Cash.. 24,000

C.
McCartney, Capital 13,000
Harris, Capital.. 13,000
Hussin, Capital.. 2,000
Cash.. 24,000

D.
Cash 24,000
Hussin, Capital.. 2,000
McCartney, Capital 13,000
Harris, Capital.. 13,000

E.
Cash 24,000
McCartney, Capital 8,000
Harris, Capital.. 8,000
Hussin, Capital.. 8,000

Answer: B
Feedback

Capital
Cash McCartney Harris Hussin
$24,000 $13,000 $13,000 $(2,000)
Allocate deficiency (1,000) (1,000) 2,000
Allocate cash ( 24,000) ( 12,000) ( 12,000) 0

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P4
Topic: Capital Deficiency
Topic: Debit
Topic: Credit
Topic: Liquidation

[QUESTION]

81. Rodriguez, Sate, and Melton are dissolving their partnership. Their partnership agreement allocates income and losses equally among the partners. The current periods ending capital account balances are Rodriguez, $30,000; Sate, $30,000; and Melton, $(4,000). After all the assets are sold and liabilities are paid, but before any contributions are considered to cover any deficiencies, there is $56,000 in cash to be distributed. Melton pays $4,000 to cover the deficiency in her account. The general journal entry to record the final distribution would be:
A.
Rodriguez, Capital 30,000
Sate, Capital 30,000
Cash.. 60,000

B.
Rodriguez, Capital 28,000
Sate, Capital 28,000
Cash.. 56,000

C.
Rodriguez, Capital 30,000
Sate, Capital 30,000
Melton, Capital 4,000
Cash.. 56,000

D.
Cash 56,000
Melton, Capital. 4,000
Rodriguez, Capital 30,000
Sate, Capital.. 30,000

E.
Rodriguez, Capital 18,667
Sate, Capital 18,667
Melton, Capital. 18,666
Cash.. 56,000

Answer: A
Feedback:

Capital
Cash Rodriguez Sate Melton
$56,000 $30,000 $30,000 $(4,000)
Contribution by Melton 4,000 4,000
Allocate cash ( 60,000) ( 30,000) ( 30,000) 0

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P4
Topic: Capital Deficiency
Topic: Debit
Topic: Credit
Topic: Liquidation

[QUESTION]

82. Rodriguez, Sate, and Melton are dissolving their partnership. Their partnership agreement allocates income and losses equally among the partners. The current periods ending capital account balances are Rodriguez, $32,000; Sate, $28,000; and Melton, $(4,000). After all the assets are sold and liabilities are paid, but before any contributions are considered to cover any deficiencies, there is $56,000 in cash to be distributed. Melton pays $2,000 to cover the deficiency in her account. The final distribution of cash would be as follows:
A. Rodriquez $30,000 and State $26,000.
B. Rodriquez $32,000 and State $26,000.
C. Rodriquez $30,000 and State $28,000.
D. Rodriquez $30,000 and State $27,000.
E. Rodriquez $31,000 and State $27,000.
Answer: E

Capital
Cash Rodriguez Sate Melton
$56,000 $32,000 $28,000 ($4,000)
Contribution by Melton $2,000 $2,000
Allocation of deficiency ($1,000) ($1,000) $2,000
Allocation of cash $58,000 $31,000 $27,000 0

Blooms Taxonomy: Apply
AACSB: Analytic
AACSB: Communication
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 3 Hard
Learning Objective: D-P4
Topic: Capital Deficiency
Topic: Debit
Topic: Credit
Topic: Liquidation

Matching Questions

[QUESTION]

83. Match each of the following terms with the appropriate definitions:

_______ A. Statement of changes in partners equity
_______ B. Limited partnership
_______ C. Limited liability partnership
_______ D. Unlimited liability of partners
_______ E. Partnership contract
_______ F. Partnership
_______ G. General partner
_______ H. Mutual agency
_______ I. C Corporation
_______ J. S Corporation

1. An unincorporated association of two or more persons to pursue a business for profit as co-owners.
2. The agreement between partners that sets terms under which the affairs of the partnership are conducted.
3. A financial statement that shows total capital balances at the beginning of the period, any additional investment by partners, the income or loss of the period, the partners withdrawals and the ending capital balances.
4. The legal relationship among general partners that makes each of them responsible for paying the debts of the partnership if the other partners are unable to pay their shares.
5. A corporation that meets special tax qualifications so as to be treated like a partnership for income tax purposes.
6. A partner who assumes unlimited liability for the debts of the partnership.
7. A corporation that does not qualify for and elect to be treated like a partnership for income tax purposes and therefore is subject to income taxes.
8. A partnership that has two classes of partners, limited partners and general partners. Limited partners have no personal liability beyond the amount they invest in the partnership and have no active role except as specified in the partnership agreement.
9. A partnership that protects innocent partners from malpractice or negligence claims resulting from the acts of another partner.
10. The legal relationship among partners whereby each partner can commit or bind the partnership to any contract within the scope of the partnerships business.

Answer: (A) 3(B) 8 (C) 9 (D) 4 (E) 2 (F) 1 (G) 6 (H) 10 (I) 7 (J) 5

Blooms Taxonomy: Understand
AACSB: Communication
AICPA BB: Legal
AICPA FN: Measurement
Difficulty: 2 Medium
Learning Objective: D-C1
Learning Objective: D-P2
Topic: Statement Of Partners Equity
Topic: Limited Partnership
Topic: Limited Liability Partnership
Topic: Partnership
Topic: General Partner
Topic: Mutual Agency
Topic: C Corporation
Topic: S Corporation

Essay Questions

[QUESTION]

84. Identify and discuss the key characteristics of partnerships. Also, identify nonpartnership organizations that possess the positive aspects of both partnerships and corporations.

Answer: Partnerships are unincorporated associations of two or more persons who join to pursue a business for profit as co-owners. Partners sign a partnership agreement and are subject to mutual agency and unlimited liability for acts of the partnership. Partnerships have limited life and are not taxable entities. Several types of business organizations such as S corporations, limited liability partnerships, and limited liability companies combine the positive aspects of partnerships and corporations. The most notable is the adoption of the corporate characteristic of limited liability for owners of these hybrid business forms.

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Industry
AICPA BB: Legal
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-C1
Topic: Partnership
Topic: S Corporation
Topic: Limited Liability Partnership
Topic: Limited Liability Company

[QUESTION]

85. Define the partner return on equity ratio and explain how a specific partner would use this ratio.

Answer: The partner return on equity ratio is calculated by dividing the partners income by the average equity of that partner. This ratio can be calculated for individual partners or for the total partnership. It can be used by a partner to help determine whether additional investment or withdrawal of resources is best for that partner.

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AACSB: Reflective Thinking
AICPA BB: Critical Thinking
AICPA BB: Industry
AICPA FN: Measurement
AICPA FN: Reporting
Difficulty: 2 Medium
Learning Objective: D-A1
Topic: Partner Return On Equity

[QUESTION]

86. How are partners investments in a partnership recorded?

Answer: When partners invest in a partnership, their individual contributions are credited to each partners capital account at an agreed-on value. The assets contributed are debited to the appropriate asset account. Partners may contribute assets that are encumbered by liabilities that are credited to the appropriate liability account.

Blooms Taxonomy: Understand
AACSB: Analytic
AACSB: Communication
AICPA BB: Cri

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