Chapter 12
Accounting for Partnerships
Accounting for Partnerships
True / False Questions
1. A partnership has a limited life.
True False
2. A partnership is an incorporated
association of two or more people to pursue a business for profit as co-owners.
True False
3. Mutual agency means each partner can commit
or bind the partnership to any contract within the scope of the partnership
business.
True False
4. Accounting procedures for both C
corporations and S corporations are the same in all aspects.
True False
5. Partners in a partnership are taxed on the
partnership income, not the amounts they withdraw from the partnership.
True False
6. Limited liability partnerships are designed
to protect innocent partners from malpractice or negligence claims resulting
from the acts of another partner.
True False
7. A partnership may allocate salary
allowances to the partners reflecting the relative value of services provided.
True False
8. In a limited partnership the general
partner has unlimited liability.
True False
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.
True False
10. Feldt is a partner in Feldt & Dodson
Company. Feldt’s share of the partnership income is $18,600 and her average
partnership equity is $155,000. Her partner return on equity equals 8.33.
True False
11. When partners invest in a partnership,
their capital accounts are debited for the amount invested.
True False
12. Partners’ withdrawals are debited to their
separate withdrawals accounts.
True False
13. Partners can invest assets but not
liabilities into a partnership.
True False
14. The withdrawals account of each partner is
closed to retained earnings at the end of the accounting period.
True False
15. In closing the accounts at the end of a
period, the partners’ capital accounts are credited for their share of the
partnership net income or debited for their share of the partnership loss.
True False
16. In the absence of a partnership agreement,
the law says that income of a partnership will be shared equally by the
partners.
True False
17. Salary allowances are reported as salaries
expense on a partnership income statement.
True False
18. The statement of changes in partners’
equity shows the beginning balance in retained earnings, plus investments, less
withdrawals, plus the income (or less the loss) and the ending balance in
retained earnings.
True False
19. The equity section of the balance sheet of
a partnership can report the separate capital account balances of each partner.
True False
20. Even if partners devote their time and
services to their partnership, their salaries are not expenses on the income
statement.
True False
21. If the partners agree on a formula to
share income and say nothing about losses, then the losses are shared using the
same formula.
True False
22. Assume that the M & L partnership
agreement gave March 60% and Ludwig 40% of partnership income and losses. The
partnership lost $27,000 in the current period. This implies that March’s share
of the loss equals $16,200, and Ludwig’s share equals $10,800.
True False
23. When a partner leaves a partnership, the
present partnership ends.
True False
24. To buy into an existing partnership, the
new partner must contribute cash to the partnership.
True False
25. When a partner leaves a partnership, the
present partnership ends, but the business can still continue to operate.
True False
26. Assets invested by a partner into a
partnership become the property of the business.
True False
27. Admitting a partner by accepting assets is
a personal transaction between one or more current partners and the new
partner.
True False
28. Current partners usually require any new
partner to pay a bonus for the privilege of joining when the current value of a
partnership is greater than the recorded amounts of equity.
True False
29. When a partner leaves a partnership, the
withdrawing partner is entitled to a bonus if the recorded equity is
overstated.
True False
30. When a partnership is liquidated, its
business is ended.
True False
31. A capital deficiency exists when at least
one partner has a debit balance in his or her capital account at the point of
final cash distribution during liquidation.
True False
32. A capital deficiency can arise from
liquidation losses, excessive withdrawals before liquidation, or recurring
losses in prior periods.
True False
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.
True False
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.
True False
Multiple Choice Questions
35. An unincorporated association of two or
more persons to pursue a business for profit as co-owners is a:
A. Partnership.
B. Proprietorship.
C. Contractual company.
D. Mutual agency.
E. Voluntary organization.
36. Advantages of a partnership include:
A. Limited life.
B. Mutual agency.
C. Unlimited liability.
D. Co-ownership of property.
E. Voluntary association.
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.
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.
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 company.
40. A partnership designed to protect innocent
partners from malpractice or negligence claims resulting from acts of another
partner is a(n):
A. Partnership.
B. Limited partnership.
C. Limited liability partnership.
D. General partnership.
E. Unlimited liability company.
41. Mutual agency implies that each partner in
a partnership is a fully authorized agent of the partnership. Which of the
following statements is correct regarding the authority of a partner to bind
the partnership in dealings with third parties?
A. The partner’s authority must be derived
from the partnership agreement.
B. The partner’s authority may be effectively
limited by a formal resolution of the other partners, even if third parties are
not aware of that limitation.
C. Only a partner with a majority interest in
a partnership has the authority to represent the partnership to third parties.
D. A partner has authority to deal with third
parties on the behalf of the other partners only if he has written permission
to do so.
E. A partner may be able to legally bind the
partnership to actions even if the other partners are unaware of his actions.
42. Pat and Nicole formed Here & There as
a limited liability company. Unless the member owners elect to be treated
otherwise, the Internal Revenue Service will tax the LLC as:
A. An S corporation.
B. A C corporation.
C. A non-taxable entity.
D. A joint venture.
E. A partnership.
43. A partnership in which all partners have
mutual agency and unlimited liability is called:
A. Limited partnership.
B. Limited liability partnership.
C. General partnership.
D. S corporation.
E. Limited liability company.
44. Carter Pearson is a partner in Event
Promoters. His beginning partnership capital balance for the current year is
$55,000, and his ending partnership capital balance for the current year is
$62,000. His share of this year’s partnership income was $6,250. What is his
partner return on equity?
A. 5.34%
B. 8.93%
C. 10.08%
D. 11.36%
E. 10.68%
45. Design Services is organized as a limited
partnership, with Miko Toori as one of its partners. Miko’s capital account
began the year with a balance of $35,000. During the year, Miko’s share of the
partnership income was $7,500, and Miko received $4,000 in distributions from
the partnership. What is Miko’s partner return on equity?
A. 10.2%
B. 22.7%
C. 19.5%
D. 20.4%
E. 21.4%
46. The following information is available
regarding Grace Smit’s capital account in Enterprise Consulting Group, a
general partnership, for a recent year:
Beginning of the year balance $22,000
Share of partnership income $8,500
Withdrawals made during the year $6,000
Share of partnership income $8,500
Withdrawals made during the year $6,000
What is Smit’s partner return on equity during
the year in question?
A. 36.6%
B. 34.7%
C. 10.8%
D. 11.4%
E. 55.7%
47. Partnership accounting does not:
A. Use a capital account for each partner.
B. Use a withdrawals account for each partner.
C. Allocate net income to each partner
according to the partnership agreement.
D. Allocate net loss to each partner according
to the partnership agreement.
E. Tax the business entity.
48. Partnership accounting is the same as
accounting for:
A. A sole proprietorship.
B. A corporation.
C. A sole proprietorship, except that separate
capital and withdrawal accounts are kept for each partner.
D. An S corporation.
E. A corporation, except that retained
earnings is used to keep track of partners’ withdrawals.
49. 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.
50. The withdrawals account of each partner
is:
A. Closed to that partner’s capital account
with a credit.
B. Closed to that partner’s capital account
with a debit.
C. A permanent account that is not closed.
D. Credited with that partner’s share of net
income.
E. Debited with that partner’s share of net
loss.
51. R. Stetson contributed $14,000 in cash
plus office equipment valued at $7,000 to the SJ Partnership. The journal entry
to record the transaction for the partnership is:
A. Debit Cash $14,000; debit Office Equipment
$7,000; credit R Stetson, Capital $21,000.
B. Debit Cash $14,000; debit Office Equipment
$7,000; credit SJ Partnership, Capital $21,000.
C. Debit SJ Partnership $21,000; credit R.
Stetson, Capital $21,000.
D. Debit R. Stetson, Capital $21,000; credit
SJ Partnership, Capital $21,000.
E. Debit Cash $14,000; debit Office Equipment
$7,000; credit Common Stock $21,000.
52. T. Andrews contributed $14,000 in to the T
& B Partnership. The journal entry to record the transaction for the
partnership is:
A. Debit Cash $14,000; credit T & B
Partnership, Capital $14,000.
B. Debit Cash $14,000; credit T. Andrews,
Capital $14,000.
C. Debit T & B Partnership $14,000; credit
T. Andrews, Capital $14,000.
D. Debit T. Andrews, Capital $14,000; credit T
& B Partnership, Capital $14,000.
E. Debit Cash $14,000; credit Common Stock
$14,000.
53. Forman and Berry are forming a
partnership. Forman will invest a building that currently is being used by
another business owned by Forman. The building has a market value of $80,000.
Also, the partnership will assume responsibility for a $20,000 note secured by
a mortgage on that building. Berry will invest $50,000 cash. For the
partnership, the amounts to be recorded for the building and for Forman’s
Capital account are:
A. Building, $80,000 and Forman, Capital,
$80,000.
B. Building, $60,000 and Forman, Capital,
$60,000.
C. Building, $60,000 and Forman, Capital,
$50,000.
D. Building, $80,000 and Forman, Capital,
$60,000.
E. Building, $60,000 and Forman, Capital,
$80,000.
54. Maxwell and Smart are forming a
partnership. Maxwell is investing a building that has a market value of
$180,000. However, the building carries a $56,000 mortgage that will be assumed
by the partnership. Smart is investing $120,000 cash. The balance of Maxwell’s
Capital account will be:
A. $180,000.
B. $124,000.
C. $56,000.
D. $64,000.
E. $60,000.
55. Harvey and Quick have decided to form a
partnership. Harvey is going to contribute a depreciable asset to the
partnership as his equity contribution to the partnership. The following
information regarding the asset to be contributed by Harvey is available:
Historical cost of the asset $76,000
Accumulated depreciation on the asset $40,000
Note payable secured by the asset* $18,000
Agreed-upon market value of the asset $45,000
*will be assumed by the partnership
Accumulated depreciation on the asset $40,000
Note payable secured by the asset* $18,000
Agreed-upon market value of the asset $45,000
*will be assumed by the partnership
Based on this information, Harvey’s beginning
equity balance in the partnership will be:
A. $76,000
B. $36,000
C. $18,000
D. $27,000
E. $45,000
56. Dalworth and Minor have decided to form a
partnership. Minor is going to contribute a depreciable asset to the
partnership as her equity contribution to the partnership. The following
information regarding the asset to be contributed by Minor is available:
Historical cost of the asset $276,000
Accumulated depreciation on the asset $140,000
Note payable secured by the asset and assumed by the partnership $118,000
Agreed-upon market value of the asset $245,000
Accumulated depreciation on the asset $140,000
Note payable secured by the asset and assumed by the partnership $118,000
Agreed-upon market value of the asset $245,000
Based on this information, Minor’s beginning
equity balance in the partnership will be:
A. $276,000
B. $158,000
C. $136,000
D. $127,000
E. $18,000
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.
58. In a partnership agreement, if the
partners agreed to an interest allowance of 10% annually on each partner’s
investment, the interest allowance:
A. Is ignored when earnings are not sufficient
to pay interest.
B. Can make up for unequal capital
contributions.
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.
59. Wheadon, Davis, and Singer formed a
partnership with Wheadon contributing $60,000, Davis contributing $50,000 and
Singer 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 thousand) would be credited to Singer’s
capital account?
A. $20,000.
B. $25,000.
C. $30,000.
D. $40,000.
E. $75,000.
60. Wheadon, Davis, and Singer formed a
partnership with Wheadon contributing $60,000, Davis contributing $50,000 and
Singer 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 thousand) would be credited to Wheadon’s
capital account?
A. $20,000.
B. $25,000.
C. $30,000.
D. $40,000.
E. $75,000.
61. Christie and Jergens formed a partnership
with capital contributions of $300,000 and $400,000, respectively. Their
partnership agreement calls for Christie to receive a $60,000 per year salary.
Also, each partner is to receive an interest allowance equal to 10% of a
partner’s 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
Christie and Jergens’s 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.
62. Farmer and Taylor formed a partnership
with capital contributions of $200,000 and $250,000, respectively. Their
partnership agreement calls for Farmer to receive a $70,000 per year salary.
The remaining income or loss is to be divided equally. If the net income for
the current year is $135,000, then Farmer and Taylor’s respective shares are:
A. $67,500; $67,500.
B. $130,000; $5,000.
C. $106,140; $28,860.
D. $90,000; $45,000.
E. $102,500; $32,500.
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.
64. Zheng invested $100,000 and Murray
invested $200,000 in a partnership. They agreed to share incomes and losses by
allowing a $60,000 per year salary allowance to Zheng and a $40,000 per year
salary allowance to Murray, 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 $105,000 in income are:
A. $52,500 to Zheng; $52,500 to Murray.
B. $35,000 to Zheng; $70,000 to Murray.
C. $57,500 to Zheng; $47,500 to Murray.
D. $42,500 to Zheng; $62,500 to Murray.
E. $70,000 to Zheng; $60,000 to Murray.
65. Brown invested $200,000 and Freeman
invested $150,000 in a partnership. They agreed to 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 $205,000 in income are:
A. $102,500 to Brown; $102,500 to Freeman.
B. $117,143 to Brown; $87,857 to Freeman.
C. $122,500 to Brown; $82,500 to Freeman.
D. $105,000 to Brown; $100,000 to Freeman.
E. $112,750 to Brown; $92,250 to Freeman.
66. The partnership agreement for Wilson,
Pickett & Nelson, a general partnership, provided that profits be shared
between the partners in the ratio of their financial contributions to the
partnership. Wilson contributed $100,000, Pickett contributed $50,000 and
Nelson contributed $50,000. In the partnership’s first year of operation, it
incurred a loss of $110,000. What amount of the partnership’s loss, rounded to
the nearest dollar, should be absorbed by Nelson?
A. $50,000
B. $27,500
C. $36,667
D. $0
E. $40,000
67. Olivia Greer is a partner in Made for You.
An analysis of Greer’s capital account indicates that during the most recent
year, she withdrew $30,000 from the partnership. Her share of the partnership’s
net loss was $16,000 and she made an additional equity contribution of $10,000.
Her capital account ended the year at $150,000. What was her capital balance at
the beginning of the year?
A. $154,000
B. $170,000
C. $180,000
D. $186,000
E. $196,000
68. The following information is available on
TGR Enterprises, a partnership, for the most recent fiscal year:
Total partnership capital at beginning of the
year $180,000
Partnership net income for the year $150,000
Withdrawals by partners during the year $120,000
Additional investments by partners during the year $60,000
Partnership net income for the year $150,000
Withdrawals by partners during the year $120,000
Additional investments by partners during the year $60,000
There are three partners in TGR Enterprises:
Tracey, Gregory and Rodgers. At the end of the year, the partners’ capital
accounts were in the ratio of 2:1:2, respectively. Compute the ending capital
balances of the three partners.
A. Tracey = $108,000; Gregory = $54,000;
Rodgers = $108,000.
B. Tracey = $90,000; Gregory = $90,000;
Rodgers = $90,000.
C. Tracey = $204,000; Gregory = $102,000;
Rodgers = $204,000.
D. Tracey = $84,000; Gregory = $102,000;
Rodgers = $84,000.
E. Tracey = $60,000; Gregory = $30,000;
Rodgers = $60,000.
69. The following information is available on
PDC Enterprises, a partnership, for the most recent fiscal year:
Total partnership capital at beginning of the
year $1,080,000
Partnership net income for the year $1,250,000
Withdrawals by partners during the year $320,000
Additional investments by partners during the year $70,000
Partnership net income for the year $1,250,000
Withdrawals by partners during the year $320,000
Additional investments by partners during the year $70,000
There are three partners in TGR Enterprises:
Pearson, Darling and Cathay. At the end of the year, the partners’ capital
accounts were in the ratio of 2:2:1, respectively. Compute the ending capital
balances of Cathay.
A. $466,000.
B. $402,000.
C. $416,000.
D. $544,000.
E. $388,000.
70. A partner can withdraw from a partnership
by any of the following means except:
A. Selling his/her interest to another person
for cash.
B. Selling his/her interest to another person
in exchange for assets.
C. Receiving cash from the partnership in the
amount of his/her interest.
D. Receiving assets from the partnership in
the amount of his/her interest.
E. Close the business and liquidate the assets
under the mutual agency principle.
71. A bonus may be paid in all of the
following situations except:
A. By a new partner when the current value of
a partnership is greater than the recorded amounts of equity.
B. By a withdrawing partner to remaining
partners if the recorded value of the equity is overstated.
C. To a new partner with exceptional talents.
D. By remaining partners to a withdrawing
partner if the recorded equity is understated.
E. By an existing partner to him or herself
when in need of personal cash flow.
72. When a partner is added to a partnership:
A. The previous partnership ends.
B. The underlying business operations end.
C. The underlying business operations must
close and then re-open.
D. The partnership must continue.
E. The partnership equity always increases.
73. A partnership recorded the following
journal entry:
Cash 60,000
B. Founder, Capital 10,000
R. Aqui, Capital 10,000
H. Joiner, Capital 80,000
B. Founder, Capital 10,000
R. Aqui, Capital 10,000
H. Joiner, Capital 80,000
This entry reflects:
A. Acceptance of a new partner who invests
$60,000 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 Founder and Aqui.
E. Withdrawal of $10,000 each by Founder and
Aqui upon the admission of a new partner.
74. Wright, Bell, and Edison are partners and
share income in a 2:5:3 ratio. The partnership’s capital balances are as
follows: Wright, $33,000, Bell $27,000 and Edison $40,000. Edison decides to
withdraw from the partnership, and the partners agree not to revalue the assets
upon Edison’s retirement. The journal entry to record Edison’s June 1
withdrawal from the partnership if Edison sells his interest to Whitney for
$45,000 after the other two partners approve Whitney as partner is:
A. Debit Edison, Capital $45,000; credit
Whitney, Capital $45,000.
B. Debit Edison, Capital $40,000; credit Cash
$40,000.
C. Debit Edison, Capital $40,000; debit
Wright, Capital $2,500; debit Bell, Capital $2,500; credit Whitney, Capital
$45,000.
D. Debit Edison, Capital $40,000; credit
Whitney, Capital $40,000.
E. Debit Edison, Capital $40,000; debit Cash
$5,000; credit Whitney, Capital $45,000.
75. Wright, Bell, and Edison are partners and
share income in a 2:5:3 ratio. The partnership’s capital balances are as
follows: Wright, $33,000, Bell $27,000 and Edison $40,000. Edison decides to
withdraw from the partnership, and the partners agree not to revalue the assets
upon Edison’s retirement. The journal entry to record Edison’s June 1
withdrawal from the partnership if Edison is paid $40,000 for his equity is:
A. Debit Edison, Capital $40,000; credit Cash
$40,000.
B. Debit Wright, Capital $20,000; Debit Bell,
Capital $20,000; credit Cash $40,000.
C. Debit Wright, Capital $20,000; Debit Bell,
Capital $20,000; credit Edison, Capital $40,000.
D. Debit Edison, Capital $40,000; credit
Wright, Capital $20,000; credit Bell, Capital $20,000.
E. Debit Cash $40,000; credit Edison, Capital
$40,000.
76. Hewlett and Martin are partners. Hewlett’s
capital balance in the partnership is $64,000, and Martin’s capital balance
$67,000. Hewlett and Martin have agreed to share equally in income or loss. The
existing partners agree to accept Black with a 20% interest. Black will invest
$35,000 in the partnership. The bonus that is granted to Hewlett and Martin
equals:
A. $900 each.
B. $1,500 each.
C. $600 each.
D. 600 to Hewlett; $900 to Martin.
E. $0, because Hewlett and Martin actually
grant a bonus to Black.
77. Hewlett and Martin are partners. Hewlett’s
capital balance in the partnership is $64,000, and Martin’s capital balance
$61,000. Hewlett and Martin have agreed to share equally in income or loss.
Hewlett and Martin agree to accept Black with a 25% interest. Black will invest
$35,000 in the partnership. The bonus that is granted to Black equals:
A. $5,000.
B. $2,500.
C. $6,667.
D. $3,333.
E. $0, because Black must actually grant a
bonus to Hewlett and Martin.
78. Masters, Hardy, and Rowen are dissolving
their partnership. Their partnership agreement allocates income and losses
equally among the partners. The current period’s ending capital account
balances are Masters, $15,000; Hardy, $15,000; Rowen, $(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. Rowen pays $2,000
to cover the deficiency in his account. The general journal entry to record the
final distribution would be:
A. Debit Masters, Capital $15,000; debit
Hardy, Capital $15,000; credit Cash $30,000.
B. Debit Masters, Capital $14,000; debit
Hardy, Capital $14,000; credit Cash $28,000.
C. Debit Masters, Capital $15,000; debit
Hardy, Capital $15,000; credit Rowen, Capital $2,000; credit Cash $28,000.
D. Debit Cash $28,000; debit Rowen, Capital
$2,000; credit Masters, Capital $15,000; credit Hardy, Capital $15,000.
E. Debit Masters, Capital $9,334; debit Hardy,
Capital $9,333; debit Rowen, Capital $9,333; credit Cash $28,000.
79. Masters, Hardy, and Rowen are dissolving
their partnership. Their partnership agreement allocates income and losses
equally among the partners. The current period’s ending capital account
balances are Masters, $15,000; Hardy, $15,000; Rowen, $30,000. After all the
assets are sold and liabilities are paid, but before any contributions to cover
any deficiencies, there is $54,000 in cash to be distributed. The general
journal entry to record the final distribution would be:
A. Debit Masters, Capital $18,000; debit
Hardy, Capital $18,000; debit Rowen, Capital $18,000; credit Cash $54,000.
B. Debit Masters, Capital $13,500; debit
Hardy, Capital $13,500; debit Rowen, Capital $27,000; credit Cash $54,000.
C. Debit Masters, Capital $15,000; debit
Hardy, Capital $15,000; debit Rowen, Capital $30,000; credit Gain from
Liquidation $6,000; credit Cash $54,000.
D. Debit Cash $54,000; credit Rowen, Capital
$13,500; credit Masters, Capital $13,500; credit Hardy, Capital $27,000.
E. Debit Masters, Capital $15,000; debit
Hardy, Capital $15,000; debit Rowen, Capital $30,000; credit Retained Earnings
$6000; credit Cash $54,000.
80. When a partnership is liquidated:
A. Noncash assets are distributed to partners.
B. Any gain or loss on liquidation is
allocated to the partner with the highest capital account balance.
C. Liabilities are paid or settled.
D. Any remaining cash is distributed to the
partners equally.
E. The business may continue to operate.
81. 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.
82. 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 before distribution of cash.
C. The partnership ends before distribution of
cash.
D. The deficient partner is relieved of the
liability.
E. The remaining partners must wait for the
deficiency to be paid before cash is distributed.
83. Henry, Luther, and Gage are dissolving
their partnership. Their partnership agreement allocates each partner 1/3 of
all income and losses. The current period’s ending capital account balances are
Henry, $45,000; Luther, $37,000; and Gage, $(5,000). After all assets are sold
and liabilities are paid, there is $77,000 in cash to be distributed. Gage is
unable to pay the deficiency. The journal entry to record the distribution
should be:
A. Debit Henry, Capital $25,667; debit Luther,
Capital $25,667; debit Gage, Capital $25,666; credit Cash $77,000.
B. Debit Henry, Capital $42,500; debit Luther,
Capital $34,500; credit Cash $77,000.
C. Debit Henry, Capital $45,000; debit Luther,
Capital $37,000; credit Gage, Capital $5,000; credit Cash $77,000.
D. Debit Cash $77,000, debit Gage, Capital
$5,000, credit Henry, Capital $45,000, credit Luther, Capital $37,000.
E. Debit Cash $77,000; credit Henry, Capital
$25,667; credit Luther, Capital $25,667; credit Gage, Capital $25,666.
84. Henry, Luther, and Gage are dissolving
their partnership. Their partnership agreement allocates each partner 1/3 of
all income and losses. The current period’s ending capital account balances are
Henry, $45,000; Luther, $37,000; and Gage, $(5,000). After all assets are sold
and liabilities are paid, there is $77,000 in cash to be distributed. Gage is
unable to pay the deficiency. What amount of cash will Gage receive upon
liquidation?
A. $25,667.
B. $20,667.
C. $30,667.
D. Gage will be invoiced for $5,000.
E. $0.
85. Fontaine and Monroe are forming a
partnership. Fontaine invests a building that has a market value of $250,000;
the partnership assumes responsibility for a $75,000 note secured by a mortgage
on the property. Monroe invests $100,000 in cash and equipment that has a
market value of $55,000. For the partnership, the amounts recorded for the
building and for Fontaine’s Capital account are:
A. Building $250,000; Fontaine, Capital
$250,000.
B. Building $175,000; Fontaine, Capital
$175,000.
C. Building $250,000; Fontaine, Capital
$75,000.
D. Building $250,000; Fontaine, Capital
$175,000.
E. Building $175,000; Fontaine, Capital
$75,000.
86. Fontaine and Monroe are forming a
partnership. Fontaine invests a building that has a market value of $250,000;
the partnership assumes responsibility for a $75,000 note secured by a mortgage
on the property. Monroe invests $100,000 in cash and equipment that has a
market value of $55,000. For the partnership, the amounts recorded for
Fontaine’s Capital account and for Monroe’s Capital account are:
A. Fontaine, Capital $175; Monroe, Capital
$45,000.
B. Fontaine, Capital $0; Monroe, Capital
$100,000.
C. Fontaine, Capital $250,000; Monroe, Capital
$100,000.
D. Fontaine, Capital $250,000; Monroe, Capital
$155,000.
E. Fontaine, Capital $175,000; Monroe, Capital
$155,000.
87. Fontaine and Monroe are forming a
partnership. Fontaine invests a building that has a market value of $250,000;
the partnership assumes responsibility for a $75,000 note secured by a mortgage
on the property. Monroe invests $100,000 in cash and equipment that has a
market value of $55,000. For the partnership, the amounts recorded for total
assets and for total capital account are:
A. Total assets $405,000; total capital
$330,000.
B. Total assets $350,000; total capital
$350,000.
C. Total assets $350,000; total capital
$275,000.
D. Total assets $305,000; total capital
$230,000.
E. Total assets $405,000; total capital
$305,000.
88. Cox, North, and Lee form a partnership.
Cox contributes $180,000, North contributes $150,000, and Lee contributes
$270,000. Their partnership agreement calls for the income or loss division to
be based on the ratio of capital invested. If the partnership reports income of
$150,000 for its first year, what amount of income is credited to Cox’s capital
account?
A. $50,000.
B. $64,286.
C. $45,000.
D. $36,000.
E. $60,000.
89. Cox, North, and Lee form a partnership.
Cox contributes $180,000, North contributes $150,000, and Lee contributes
$270,000. Their partnership agreement calls for the income or loss division to
be based on the ratio of capital invested. If the partnership reports income of
$150,000 for its first year, what amount of income is credited to Lee’s capital
account?
A. $50,000.
B. $67,500.
C. $45,000.
D. $54,000.
E. $60,000.
90. Cox, North, and Lee form a partnership.
Cox contributes $180,000, North contributes $150,000, and Lee contributes
$270,000. Their partnership agreement calls for a 5% interest allowance on the
partner’s capital balances with the remaining income or loss to be allocated equally.
If the partnership reports income of $150,000 for its first year, what amount
of income is credited to North’s capital account?
A. $50,000.
B. $63,500.
C. $61,500.
D. $47,500.
E. $45,000.
91. Cox, North, and Lee form a partnership.
Cox contributes $180,000, North contributes $150,000, and Lee contributes
$270,000. Their partnership agreement calls for a 5% interest allowance on the
partner’s capital balances with the remaining income or loss to be allocated
equally. If the partnership reports income of $174,000 for its first year, what
amount of income is credited to Lee’s capital account?
A. $58,000.
B. $57,000.
C. $61,500.
D. $55,500.
E. $48,000.
92. Mace and Bowen are partners and share
equally in income or loss. Mace’s current capital balance is $135,000 and
Bowen’s is $120,000. Mace and Bowen agree to accept Kent with a 30% interest in
the partnership. Kent invests $115,000 in the partnership. The amount credited
to Kent’s capital account is:
A. $111,000.
B. $115,000.
C. $92,500.
D. $120,000.
E. $119,000.
93. Mace and Bowen are partners and share
equally in income or loss. Mace’s current capital balance is $135,000 and
Bowen’s is $120,000. Mace and Bowen agree to accept Kent with a 30% interest in
the partnership. Kent invests $115,000 in the partnership. The balances in
Mace’s and Bowen’s capital accounts after admission of the new partner equal:
A. Mace $135,000; Bowen $120,000.
B. Mace $137,000; Bowen $122,000.
C. Mace $133,000; Bowen $118,000.
D. Mace $139,000; Bowen $120,000.
E. Mace $135,000; Bowen $124,000.
94. Peters and Chong are partners and share
equally in income or loss. Peters’ current capital balance is $140,000 and
Chong’s is $130,000. Peters and Chong agree to accept Aaron with a 30% interest
in the partnership. Aaron invests $98,000 in the partnership. The balances in
Peters’s and Chong’s capital accounts after admission of the new partner equal:
A. Peters $140,000; Chong $130,000.
B. Peters $146,200; Chong $136,200.
C. Peters $145,000; Chong $135,000.
D. Peters $133,800; Chong $123,800.
E. Peters $166,027; Chong $156,027.
95. Peters and Chong are partners and share
equally in income or loss. Peters’ current capital balance is $140,000 and
Chong’s is $130,000. Peters and Chong agree to accept Aaron with a 30% interest
in the partnership. Aaron invests $98,000 in the partnership. The amount
credited to Aaron’s capital account is:
A. $81,000.
B. $102,600.
C. $110,400.
D. $98,000.
E. $114,533.
96. Peters, Chong, and Aaron are dissolving
their partnership. Their partnership agreement allocates each partner an equal
share of all income and losses. The current period’s ending capital account
balances are Peters, $54,000; Chong, $42,000; and Aaron, $(2,000). After all
assets are sold and liabilities are paid, there is $94,000 in cash to be
distributed. Aaron is unable to pay the deficiency. The journal entry to record
the distribution should be:
A. Debit Peters, Capital $54,000; debit Chong,
Capital $40,000; credit Cash $94,000.
B. Debit Peters, Capital $54,000; debit Chong,
Capital $42,000; credit Cash $96,000.
C. Debit Peters, Capital $53,000; debit Chong,
Capital $41,000; credit Cash $94,000.
D. Debit Cash $94,000, debit Aaron, Capital
$2,000, credit Peters, Capital $54,000, credit Chong, Capital $42,000.
E. Debit Cash $94,000; credit Peters, Capital
$47,000; credit Chong, Capital $47,000.
97. Barber and Atkins are partners in an
accounting firm and share net income and loss equally. Barber’s beginning
partnership capital balance for the current year is $285,000, and Atkins’
beginning partnership capital balance for the current year is $370,000. The
partnership had net income of $250,000 for the year. Barber withdrew $90,000
during the year and Atkins withdrew $100,000. What is Barber’s ending equity?
A. $357,500
B. $362,500
C. $445,000
D. $320,000
E. $195,000
98. Barber and Atkins are partners in an
accounting firm and share net income and loss equally. Barber’s beginning
partnership capital balance for the current year is $285,000, and Atkins’
beginning partnership capital balance for the current year is $370,000. The
partnership had net income of $250,000 for the year. Barber withdrew $90,000 during
the year and Atkins withdrew $100,000. What is Barber’s return on equity?
A. 41.3%
B. 43.9%
C. 32.7%
D. 33.8%
E. 36.5%
99. Barber and Atkins are partners in an
accounting firm and share net income and loss equally. Barber’s beginning
partnership capital balance for the current year is $285,000, and Atkins’
beginning partnership capital balance for the current year is $370,000. The
partnership had net income of $250,000 for the year. Barber withdrew $90,000
during the year and Atkins withdrew $100,000. What is Atkins’s return on
equity?
A. 41.3%
B. 43.9%
C. 32.7%
D. 33.8%
E. 36.5%
100. Fellows and Marshall are partners in an
accounting firm and share net income and loss equally. Fellows’ beginning
partnership capital balance for the current year is $185,000, and Marshall’s
beginning partnership capital balance for the current year is $260,000. The
partnership had net income of $350,000 for the year. Fellows withdrew $80,000
during the year and Marshall withdrew $70,000. What is Marshall’s return on equity?
A. 67.3%
B. 60.3%
C. 78.7%
D. 54.3%
E. 56.0%
101. If a company wants to protect its three
investors against personal liability risk, which of the following business
forms would not be a suitable option?
A. C Corporation
B. S Corporation
C. Limited liability partnership
D. Partnership
E. Limited liability company
102. Reno contributed $104,000 in cash plus
equipment valued at $27,000 to the RD Partnership. The journal entry to record
the transaction for the partnership is:
A. Debit Cash $104,000; debit Equipment
$27,000; credit RD Partnership, Capital $131,000.
B. Debit Cash $104,000; debit Equipment
$27,000; credit Common Stock $131,000.
C. Debit Cash $104,000; debit Equipment
$27,000; credit Reno, Capital $131,000.
D. Debit Reno, Capital $131,000; credit RD
Partnership, Capital $131,000.
E. Debit RD Partnership, Capital $131,000;
credit Reno, Capital $131,000.
103. Bloom and Plant organize a partnership on
January 1. Bloom’s initial investment consists of $800 cash, $1,700 equipment
and a $500 note payable reflecting a bank loan for the new business. Plant’s
initial investment is cash of $2,000. These amounts are the values agreed on by
both partners. The journal entry to record Bloom’s investment is:
A. Debit Cash $800; debit Equipment $1,700;
credit Note Payable $500; credit Bloom, Capital $2,000.
B. Debit Cash $2,000; credit Bloom, Capital
$2,000.
C. Debit Cash $800; debit Equipment $1,700;
credit Bloom, Capital $2,500.
D. Debit Cash $800; debit Equipment $1,200;
credit Bloom, Capital $2,000.
E. Debit Bloom, Capital $3,000; credit Common
Stock $3,000.
104. Bloom and Plant organize a partnership on
January 1. Bloom’s initial investment consists of $800 cash, $1,700 equipment
and a $500 note payable reflecting a bank loan for the new business. Plant’s
initial investment is cash of $2,000. These amounts are the values agreed on by
both partners. The journal entry to record Plant’s investment is:
A. Debit Cash $1,500; debit Note Payable $500;
credit Plant, Capital $2,000.
B. Debit Cash $2,000; credit Note Payable
$500, credit Plant, Capital $1,500.
C. Debit Bloom, Capital $2,000; credit Cash
$2,000.
D. Debit Cash $2,500; credit Note Payable
$500; credit Plant, Capital $2,500.
E. Debit Cash $2,000; credit Plant, Capital
$2,000.
105. Wallace and Simpson formed a partnership
with Wallace contributing $60,000 and Simpson contributing $40,000. Their
partnership agreement calls for the income (loss) division to be based on the
ratio of capital investments. The partnership had income of $150,000 for its
first year of operation. When the Income Summary is closed, the journal entry
to allocate partner income is:
A. Debit Income Summary $150,000; credit
Wallace, Capital $75,000; credit Simpson, Capital $75,000.
B. Debit Wallace, Capital $75,000; debit Simpson,
Capital $75,000; credit Income Summary $150,000.
C. Debit Income Summary $150,000; credit
Wallace, Capital $90,000; credit Simpson, Capital $60,000.
D. Debit Cash $150,000; credit Wallace,
Capital $90,000; credit Simpson, Capital $60,000.
E. Debit Wallace, Capital $90,000; debit
Simpson, Capital $60,000; credit Cash $150,000.
106. Wallace and Simpson formed a partnership
with Wallace contributing $60,000 and Simpson contributing $40,000. Their
partnership agreement calls for the income (loss) division to be based on the
ratio of capital investments. Wallace sold one-half of his partnership interest
to Prince for $55,000 when his capital balance was $78,000. The partnership
would record the admission of Prince into the partnership as:
A. Debit Wallace, Capital $55,000; credit
Prince, Capital $55,000.
B. Debit Wallace, Capital $39,000; credit
Prince, Capital $39,000.
C. Debit Prince, Capital $55,000; credit
Wallace, Capital $55,000.
D. Debit Wallace, Capital $30,000; credit
Prince, Capital $30,000.
E. Debit Wallace, Capital $39,000; debit Cash
$16,000; credit Prince, Capital $55,000.
107. Wallace, Simpson, and Prince are partners
and share income and losses in a 3:4:3 ratio. The partnership’s capital
balances are Wallace, $68,000; Simpson, $90,000; and Prince, $42,000. Royal is
admitted to the partnership on July 1 with a 20% equity and invests $50,000.
The partnership would record the admission of Royal into the partnership as:
A. Debit Wallace, Capital $15,000; debit
Simpson, Capital, $20,000; debit Prince, Capital $15,000; credit Royal, Capital
$50,000.
B. Debit Cash $20,000; credit Prince, Capital
$20,000.
C. Debit Cash $40,000; debit Wallace, Capital
$3,000; debit Simpson, Capital, $4,000; debit Prince, Capital $3,000; credit
Royal, Capital $50,000.
D. Debit Cash $50,000; credit Royal, Capital
$50,000.
E. Debit Cash $50,000; credit Simpson, Capital
$10,000, credit Royal, Capital $40,000.
Matching Questions
108. Match each of the following terms with
the appropriate definitions.
1. The legal relationship among partners
whereby each partner can commit or bind the partnership to any contract within
the scope of the partnership’s business. Statement of partners’ equity ____
2. A corporation with 100 or fewer stockholders that can elect to be treated as a partnership for income tax purposes but retain the same limited liability as other corporations. Limited partnership ____
3. The legal relationship among general partners that makes each of them personally responsible for paying the debts of the partnership if the partnership cannot pay. Limited liability partnership ____
4. 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. Unlimited liability of partners ____
5. A partnership that protects innocent partners from malpractice or negligence claims resulting from the acts of another partner. Partnership contract ____
6. A corporation that does not qualify for nor elect to be treated as a partnership for income tax purposes and therefore is subject to income taxes. Partnership ____
7. 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. General partner ____
8. The agreement between partners that sets terms under which the affairs of the partnership are conducted. Mutual agency ____
9. A partner who assumes unlimited liability for the debts of the partnership. C corporation ____
10. An unincorporated association of two or more persons to pursue a business for profit as co-owners. S corporation ____
2. A corporation with 100 or fewer stockholders that can elect to be treated as a partnership for income tax purposes but retain the same limited liability as other corporations. Limited partnership ____
3. The legal relationship among general partners that makes each of them personally responsible for paying the debts of the partnership if the partnership cannot pay. Limited liability partnership ____
4. 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. Unlimited liability of partners ____
5. A partnership that protects innocent partners from malpractice or negligence claims resulting from the acts of another partner. Partnership contract ____
6. A corporation that does not qualify for nor elect to be treated as a partnership for income tax purposes and therefore is subject to income taxes. Partnership ____
7. 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. General partner ____
8. The agreement between partners that sets terms under which the affairs of the partnership are conducted. Mutual agency ____
9. A partner who assumes unlimited liability for the debts of the partnership. C corporation ____
10. An unincorporated association of two or more persons to pursue a business for profit as co-owners. S corporation ____
Short Answer Questions
109. Identify and discuss the key
characteristics of partnerships. Also, identify other organizations that
possess partnership characteristics.
110. Define the partner return on equity ratio
and explain how a specific partner would use this ratio.
111. How are partners’ investments in a
partnership recorded?
112. Discuss the options for the allocation of
income and loss among partners, including with and without a partnership
agreement.
113. What are the ways that a new partner can
be admitted to an existing partnership? Explain how to account for the
admission of the new partner under each of these circumstances.
114. What are the ways a partner can withdraw
from a partnership? Explain how to account for the withdrawal of a current
partner from a partnership.
115. Explain the steps involved in the
liquidation of a partnership.
116. What factors should be considered before
establishing a partnership?
Essay Questions
117. Cinema Products LP is organized as a
limited partnership that sells movie props. Information related to capital
balances is given below. Compute the partner return on equity for each limited
partner. How would each partner evaluate the success of the partnership? What
would you recommend the partners do with respect to additional investments or
withdrawals?
Turner Kelly Total
Capital balance, beginning of year 890,000 570,000 1,460,000
Net income for current year 85,000 65,000 150,000
Withdrawals for current year 40,000 25,000 65,000
Capital balance, beginning of year 890,000 570,000 1,460,000
Net income for current year 85,000 65,000 150,000
Withdrawals for current year 40,000 25,000 65,000
118. Cinema Products LP is organized as a
limited partnership that sells movie props. Information related to the capital
balances is given below. Compute the partnership return on equity.
Turner Kelly Total
Capital balance, beginning of year 890,000 570,000 1,460,000
Net income for current year 85,000 65,000 150,000
Withdrawals for current year 40,000 25,000 65,000
Capital balance, beginning of year 890,000 570,000 1,460,000
Net income for current year 85,000 65,000 150,000
Withdrawals for current year 40,000 25,000 65,000
119. Caroline Meeks and Charlie Fox decide to
form a partnership on August 1. Meeks invests the following assets and
liabilities in the new partnership:
Market Value
Land $80,000
Building 250,000
Note payable 114,000
Land $80,000
Building 250,000
Note payable 114,000
The note payable is associated with the
building and the partnership will assume responsibility for the loan. Fox
invested $100,000 in cash and $95,000 in equipment in the new partnership.
Prepare the journal entries to record the two partners’ original investments in
the new partnership.
120. Montez and Flair formed a partnership.
Montez contributed $15,000 cash and accounts receivable worth $11,000. Flair contributed
cash of $5,000; inventory valued at $16,000; and supplies valued at $2,000.
Prepare the journal entries to record each partner’s investment in the new
partnership.
121. MacArthur, Strong, and Viet form a
partnership. MacArthur contributes $190,000 cash and Strong contributes
$200,000 in cash. Viet contributes equipment worth $215,000. Prepare the single
journal entry to record the formation of this partnership.
122. Ranger and Sol formed a partnership with
capital contributions of $150,000 and $180,000, respectively. Their partnership
agreement called for Ranger to receive a $60,000 annual salary allowance. They
also agreed to allow each partner a share of income equal to 10% of their
initial capital investments. The remaining income or loss is to be divided
equally. If the net income for the current year is $110,000, what are Ranger’s
and Sol’s respective shares?
123. Bannister invested $110,000 and Wilder
invested $99,500 in a new partnership. They agreed to an annual interest
allowance of 10% on the partners’ beginning-year capital balance, with the
balance of income or loss to be divided equally. Under this agreement, what are
the income or loss shares of the partners if the annual partnership income is
$202,000?
124. Bannister invested $110,000 and Wilder
invested $99,000 in a new partnership. Their partnership agreement called for
Wilder to receive a $70,000 annual salary allowance. They also agreed to an
annual interest allowance of 5% on the partners’ beginning-year capital
balance, with the balance of income or loss to be divided equally. Under this
agreement, what are the income or loss shares of the partners if the annual
partnership income is $82,000?
125. Bannister invested $110,000 and Wilder
invested $99,000 in a new partnership. Their partnership agreement called for
Wilder to receive a $70,000 annual salary allowance. Under this agreement, what
are the income or loss shares of the partners if the annual partnership income
is $90,000?
126. Fallon and Springer formed a partnership
on January 1. Fallon contributed $90,000 cash and equipment with a market value
of $60,000. Springer’s investment consisted of: cash, $30,000; inventory,
$20,000; all at market values. Partnership net income for Year 1 and Year 2 was
$75,000 and $120,000, respectively.
1. Determine each partner’s share of the net income for each year, assuming each of the following independent situations:
1. Determine each partner’s share of the net income for each year, assuming each of the following independent situations:
(a) Income is divided based on the partners’
failure to sign an agreement.
(b) Income is divided based on a 2:1 ratio (Fallon: Springer).
(c) Income is divided based on the ratio of the partners’ original capital investments.
(d) Income is divided based on interest allowance of 12% on the original capital investments; salary allowance to Fallon of $30,000 and Springer of $25,000; and the remainder to be divided equally.
(b) Income is divided based on a 2:1 ratio (Fallon: Springer).
(c) Income is divided based on the ratio of the partners’ original capital investments.
(d) Income is divided based on interest allowance of 12% on the original capital investments; salary allowance to Fallon of $30,000 and Springer of $25,000; and the remainder to be divided equally.
2. Prepare the journal entry to record the
allocation of the Year 1 income under alternative (d) above.
127. Lin and Coral invested $99,000 and
$126,000, respectively, in a partnership they began one year ago. Assuming the
partnership earned $120,000 during the current year; compute the share of the
net income each partner should receive under each of these independent
assumptions.
1. The partnership contract specifies salary
allowances of $45,000 to Lin and $60,000 to Coral, and any balance shared
equally.
Lin Coral Allocated
Net Income
Salary allowance
Remainder
Allocation of remainder
Total
Net Income
Salary allowance
Remainder
Allocation of remainder
Total
2. The partnership contract specifies salary
allowances of $45,000 to Lin and $60,000 to Coral, interest allowance of 10% on
the partners’ beginning capital balance for the year.
Lin Coral Allocated
Net Income
Salary allowance
Interest allowance
Remainder
Allocation of remainder
Total
Net Income
Salary allowance
Interest allowance
Remainder
Allocation of remainder
Total
128. Glade, Marker, and Walters are partners
with beginning-year capital balances of $100,000, $50,000, and $50,000,
respectively. Partnership net income for the year is $84,000. Make the
necessary journal entry to close Income Summary to the capital accounts if:
a. Partners agree to divide income based on
their beginning-year capital balances.
b. Partners agree to divide income based on the ratio of 5:3:2 (Glade:Marker:Walters), respectively.
c. Partnership agreement is silent as to division of income and less.
b. Partners agree to divide income based on the ratio of 5:3:2 (Glade:Marker:Walters), respectively.
c. Partnership agreement is silent as to division of income and less.
129. Glade, Marker, and Walters are partners
with beginning-year capital balances of $250,000, $150,000, and $100,000,
respectively. Partnership net income for the year is $192,000. Make the
necessary journal entry to close Income Summary to the capital accounts if
partners agree to divide income based on their beginning-year capital balances.
130. Jakobs, Penn, and Lundt are partners with
beginning-of-year capital balances of $400,000, $320,000, and $160,000,
respectively. The partners agreed to share income and loss as follows: Salary
of $30,000 to Jakobs, $50,000 to Penn, and $36,000 to Lundt. An interest
allowance of 8% on beginning-of-year capital balances. Any remaining balance is
to be divided equally. If partnership net income for the year is $190,000,
determine each partner’s share and make the appropriate journal entry to close
the Income Summary to the capital accounts.
131. Darien and Hayden agree to accept Kevin
into their partnership. Kevin will contribute $22,000 in cash. Prepare the
journal entry to record this transaction.
132. Palmer withdraws from the FAP
Partnership. The remaining partners agree to buy out her share for her capital
balance of $65,000. Prepare the journal entry to record the withdrawal from the
partnership.
133. Lemon and Parks are partners. On October
1, Lemon’s capital balance is $75,000, and Parks’ capital balance is $125,000.
With the partnership’s approval, Parks sells ½ of his partnership interest to
Tambling for $70,000. Prepare the journal entry to record this transaction in
the partnership records.
134. Leto and Duncan allow Gunner to purchase
a 25% interest in their partnership for $30,000 cash. Gunner has exceptional
talents that will enhance the partnership. Leto’s and Duncan’s capital account
balances are $55,000 each. The partners have agreed to share income or loss
equally. Prepare the general journal entry to record the admission of Lepley to
the partnership.
135. Conklin plans to leave the CAP
Partnership. The recorded value of his capital account is $48,000. The
remaining partners Arthurs and Preston agree to pay Conklin $40,000 cash and
Conklin accepts. The partners share income and loss equally. Prepare the
general journal entry to record the withdrawal from the partnership.
136. Conklin plans to leave the CAP
Partnership. The recorded balance in her capital account is $48,000. The
remaining partners, Arthurs and Preston, agree to pay Conklin $58,000 cash and
Conklin accepts. The partners share income and loss equally. Prepare the
journal entry to record the transaction.
137. Kramer and Jones allow Sanders to
purchase a 25% interest in their partnership for $50,000 cash. Kramer and Jones
both have capital balances of $55,000 each, and have agreed to share income and
loss equally. Prepare the journal entry to record the admission of Sanders to
the partnership.
138. The Redtail Partnership agrees to
dissolve. The remaining cash balance after liquidating partnership assets and
liabilities is $70,000. The final capital account balances are: Paulson,
$35,000; Gray, $25,000; and Chang, $10,000. Prepare the journal entry to
distribute the remaining cash to the partners.
139. The Redtail Partnership agrees to
dissolve. The cash balance after selling all assets and paying all liabilities
is $56,000. The final capital account balances are: Paulson, $33,000; Gray,
$27,000; and Chang, ($4,000). Chang agrees to pay $4,000 cash from personal
funds to settle his deficiency. Prepare the journal entries to record the
transactions required to dissolve this partnership.
140. The Redtail Partnership agrees to
dissolve. The cash balance after selling all assets and paying all liabilities
is $60,000. The final capital account balances are: Paulson, $35,000; Gray,
$29,000; and Chang, ($4,000). Chang is unable to pay the capital deficiency.
Prepare the journal entries to record the transactions required to dissolve
this partnership.
141. Sharon and Nancy formed a partnership by
making capital contributions of $130,000 and $195,000 respectively. They
predict annual partnership income of $230,000 and are considering the following
alternative plans of sharing income and loss: (a) in the ratio of their initial
capital investments; or (b) salary allowances of $40,000 to Sharon and $35,000
to Nancy; interest allowances of 12% on their initial capital investments; and
the balance shared equally. Assuming that both partners put about the same
amount of time into the business, which method of allocating income would be
best?
142. Sharon and Nancy formed a partnership by
making capital contributions of $130,000 and $195,000 respectively. The annual
partnership income of $230,000 is to be allocated assuming a salary allowance
of $40,000 to Sharon and $35,000 to Nancy; interest allowances of 12% on their
initial capital investments; and the balance shared equally. Prepare the
entries to record the initial capital investments, the allocation of net
income, and close the partner’s withdrawal accounts assuming that Sharon
withdrew $50,000 and Nancy withdrew $45,000.
143. Kramer and Feldman Company is organized
as a partnership. At the prior year-end, Kramer’s equity balance was $352,000
and Feldman’s was $256,000. For the current year, partnership net income is
$137,000 ($77,000 allocated to Kramer and $60,000 allocated to Feldman);
withdrawals are $87,000 ($45,000 for Kramer and $42,000 for Feldman). Compute
the total partnership return on equity and the individual partner return on
equity ratios.
144. Masco, Short, and Henderson who are
partners in the MSH Company share income and loss in a 2:2:1 ratio. They plan
to liquidate their partnership. At liquidation, their balance sheet appears as
follows. Prepare journal entries for (a) the sale of land and equipment sold as
a package for $500,000, (b) the allocation of the gain or loss, (c) the payment
of the liabilities, and (d) the distribution of cash to the individual
partners.
MSH Company
Balance Sheet
January 31
Assets Liabilities and Equity
Cash $200,000 Accounts Payable $221,500
Equipment 200,000 Masco, Capital 210,000
Land 350,000 Short, Capital 178,000
Henderson, Capital 140,500
Total assets $750,000 Total liabilities and equity $750,000
Balance Sheet
January 31
Assets Liabilities and Equity
Cash $200,000 Accounts Payable $221,500
Equipment 200,000 Masco, Capital 210,000
Land 350,000 Short, Capital 178,000
Henderson, Capital 140,500
Total assets $750,000 Total liabilities and equity $750,000
145. Tower, Knight, and Spears are partners
who share income and loss in a 3:2:2 ratio. The partnership’s capital balances
are as follows: Tower, $332,000; Knight, $124,000; and Spears, $214,000. Spears
decides to withdraw from the partnership, and the partners agree not to have
the assets revalued upon Spears’ retirement. Prepare journal entries to record
Spears’ withdrawal from the partnership under each of the following separate
assumptions: Spears (a) sells his interest to Conner for $200,000 after Tower
and Knight approve the entry of Conner as a partner; (b) is paid $214,000 in
partnership cash for his equity; (c) is paid $205,000 in partnership cash for
his equity; (d) is paid $220,000 in partnership cash for his equity.
146. Tower, Knight, and Spears are partners
who share income and loss in a 4:2:2 ratio. The partnership’s capital balances
are as follows: Tower, $292,000; Knight, $114,000; and Spears, $194,000. Damsel
is admitted to the partnership on March 1 with a 25% equity. Prepare the
journal entries to record Damsel’s entry into the partnership under each of the
following separate assumptions: Damsel invests (a) $200,000; (b) $180,000; and
(c) $240,000.
147. On May 1, Gosworth and Jordan formed a partnership.
Gosworth contributed cash of $100,000 and equipment valued at $142,000. Jordan
contributed land valued at $130,000 and a building valued at $250,000. The
partnership also assumed responsibility for Jordan’s $120,000 long-term note
payable associated with the land and building. The partners agreed to share
income as follows: Gosworth is to receive a salary allowance of $38,000, both
are to receive an annual interest allowance of 8% of their beginning-year
capital investments, and any remaining income or loss is to be shared equally.
During the year, Gosworth withdrew $40,000 and Jordan withdrew $42,000 cash.
After the adjusting and closing entries are made to the revenue and expense
accounts at the end of the year, the Income Summary account had a credit
balance of $140,000. Prepare the journal entries to record (a) the partners’
initial capital investments, (b) their cash withdrawals, and (c) closing of
both the Withdrawals and Income Summary accounts.
148. Mesner’s and Sanchez’s company is organized
as a partnership. At the prior year-end, Mesner’s equity balance was $258,000
and Sanchez’s was $212,000. For the current year, partnership net income is
$125,000 ($75,000 allocated to Mesner and $50,000 allocated to Sanchez);
withdrawals are $77,000 ($40,000 for Mesner and $37,000 for Sanchez). Compute
the total partnership return on equity and the individual partner return on
equity ratios.
Fill in the Blank Questions
149. The life of a partnership is
____________________ in duration.
________________________________________
150. A ________________ is an unincorporated
association of two or more people to pursue a business for profit as co-owners.
________________________________________
151. __________________ means that partners
can commit or bind the partnership to any contract within the scope of the
partnership business.
________________________________________
152. __________________ implies that each
partner in a partnership can be called on to personally pay a partnership’s
debts.
________________________________________
153. A partnership that has at least two
classes of partners, general and limited, allows the limited partners to have
no personal liability beyond the amounts they invest in the partnership, and
the limited partners have no active role except as specified in the partnership
agreement is a ___________________ partnership.
________________________________________
154. A partnership designed to protect
innocent partners from malpractice or negligence claims resulting from the acts
of other partners is a ________________________ partnership.
________________________________________
155. A relatively new form of business
organization that protects partners with limited liability, allows limited
partners to assume an active management role, and is taxed as a partnership is
a ______________________________.
________________________________________
156. Partners in a partnership are not taxed
on their withdrawals, but rather on _____________________________.
________________________________________
157. Partner net income divided by average
partner equity equals ______________________.
________________________________________
158. When a partner invests in a partnership,
his/her capital account is __________ for the invested amount.
________________________________________
159. During the closing process, partner’s
capital accounts are _______________ for their share of net income and
_________________ for their share of net loss.
________________________________________
160. During the closing process, each
partner’s withdrawals account is closed to _________________________.
________________________________________
161. If partners agree on how to share income,
but say nothing about losses, then losses are shared ___________________.
________________________________________
162. A partner can be admitted into a
partnership by _________________________ or by
__________________________________.
________________________________________
163. If a partner withdraws from a partnership
and the recorded value of his or her equity is overstated, then a bonus goes to
_________________________; if the recorded value of the withdrawing partner’s
equity is understated, then a bonus goes to ____________________.
________________________________________
164. At least one partner having a debit
balance in his/her capital account at the point of the final distribution of
cash is known as a _________________________.
________________________________________
Chapter 12 Accounting for Partnerships Answer
Key
True / False Questions
1. A partnership has a limited life.
TRUE
AACSB: Communication
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
2. A partnership is an incorporated
association of two or more people to pursue a business for profit as co-owners.
FALSE
AACSB: Communication
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
3. Mutual agency means each partner can commit
or bind the partnership to any contract within the scope of the partnership
business.
TRUE
AACSB: Communication
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
4. Accounting procedures for both C
corporations and S corporations are the same in all aspects.
FALSE
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
5. Partners in a partnership are taxed on the
partnership income, not the amounts they withdraw from the partnership.
TRUE
AACSB: Communication
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
6. Limited liability partnerships are designed
to protect innocent partners from malpractice or negligence claims resulting
from the acts of another partner.
TRUE
AACSB: Communication
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
7. A partnership may allocate salary
allowances to the partners reflecting the relative value of services provided.
TRUE
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
8. In a limited partnership the general
partner has unlimited liability.
TRUE
AACSB: Communication
AICPA: BB Legal
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership and Similar Organizations
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership and Similar Organizations
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.
TRUE
AACSB: Communication
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
10. Feldt is a partner in Feldt & Dodson
Company. Feldt’s share of the partnership income is $18,600 and her average
partnership equity is $155,000. Her partner return on equity equals 8.33.
FALSE
Partner Return on Equity = Partnership Income/Average Partnership Equity
Partner Return on Equity = $18,600/$155,000 = 0.12 = 12%
Partner Return on Equity = Partnership Income/Average Partnership Equity
Partner Return on Equity = $18,600/$155,000 = 0.12 = 12%
AACSB: Analytical Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
11. When partners invest in a partnership,
their capital accounts are debited for the amount invested.
FALSE
AACSB: Communication
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
12. Partners’ withdrawals are debited to their
separate withdrawals accounts.
TRUE
AACSB: Communication
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
13. Partners can invest assets but not
liabilities into a partnership.
FALSE
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
14. The withdrawals account of each partner is
closed to retained earnings at the end of the accounting period.
FALSE
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
15. In closing the accounts at the end of a
period, the partners’ capital accounts are credited for their share of the
partnership net income or debited for their share of the partnership loss.
TRUE
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Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
16. In the absence of a partnership agreement,
the law says that income of a partnership will be shared equally by the
partners.
TRUE
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AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
17. Salary allowances are reported as salaries
expense on a partnership income statement.
FALSE
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
18. The statement of changes in partners’
equity shows the beginning balance in retained earnings, plus investments, less
withdrawals, plus the income (or less the loss) and the ending balance in
retained earnings.
FALSE
AACSB: Communication
AICPA: BB Industry
AICPA: FN Reporting
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Reporting
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
19. The equity section of the balance sheet of
a partnership can report the separate capital account balances of each partner.
TRUE
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Reporting
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
20. Even if partners devote their time and
services to their partnership, their salaries are not expenses on the income
statement.
TRUE
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Reporting
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
21. If the partners agree on a formula to
share income and say nothing about losses, then the losses are shared using the
same formula.
TRUE
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AICPA: BB Industry
AICPA: BB Legal
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
22. Assume that the M & L partnership
agreement gave March 60% and Ludwig 40% of partnership income and losses. The
partnership lost $27,000 in the current period. This implies that March’s share
of the loss equals $16,200, and Ludwig’s share equals $10,800.
TRUE
March’s Share of Loss = Net Loss * Allocation Percentage
March’s Share of Loss = $27,000 * 60% = $16,200
March’s Share of Loss = Net Loss * Allocation Percentage
March’s Share of Loss = $27,000 * 60% = $16,200
Ludwig’s Share of Loss = Net Loss * Allocation
Percentage
Ludwig’s Share of Loss = $27,000 * 40% = $10,800
Ludwig’s Share of Loss = $27,000 * 40% = $10,800
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
23. When a partner leaves a partnership, the
present partnership ends.
TRUE
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
24. To buy into an existing partnership, the
new partner must contribute cash to the partnership.
FALSE
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
25. When a partner leaves a partnership, the
present partnership ends, but the business can still continue to operate.
TRUE
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Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: BB Legal
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Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
26. Assets invested by a partner into a
partnership become the property of the business.
TRUE
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Accessibility: Keyboard Navigation
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Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
Topic: Organizing a Partnership
27. Admitting a partner by accepting assets is
a personal transaction between one or more current partners and the new
partner.
FALSE
AACSB: Communication
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Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
28. Current partners usually require any new
partner to pay a bonus for the privilege of joining when the current value of a
partnership is greater than the recorded amounts of equity.
TRUE
AACSB: Communication
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Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
29. When a partner leaves a partnership, the
withdrawing partner is entitled to a bonus if the recorded equity is
overstated.
FALSE
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Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
30. When a partnership is liquidated, its
business is ended.
TRUE
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
31. A capital deficiency exists when at least
one partner has a debit balance in his or her capital account at the point of
final cash distribution during liquidation.
TRUE
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
32. A capital deficiency can arise from
liquidation losses, excessive withdrawals before liquidation, or recurring
losses in prior periods.
TRUE
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
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.
FALSE
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
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.
FALSE
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
Multiple Choice Questions
35. An unincorporated association of two or
more persons to pursue a business for profit as co-owners is a:
A. Partnership.
B. Proprietorship.
C. Contractual company.
D. Mutual agency.
E. Voluntary organization.
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
36. Advantages of a partnership include:
A. Limited life.
B. Mutual agency.
C. Unlimited liability.
D. Co-ownership of property.
E. Voluntary association.
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
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.
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
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.
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
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 company.
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
40. A partnership designed to protect innocent
partners from malpractice or negligence claims resulting from acts of another
partner is a(n):
A. Partnership.
B. Limited partnership.
C. Limited liability partnership.
D. General partnership.
E. Unlimited liability company.
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
41. Mutual agency implies that each partner in
a partnership is a fully authorized agent of the partnership. Which of the
following statements is correct regarding the authority of a partner to bind
the partnership in dealings with third parties?
A. The partner’s authority must be derived
from the partnership agreement.
B. The partner’s authority may be effectively
limited by a formal resolution of the other partners, even if third parties are
not aware of that limitation.
C. Only a partner with a majority interest in
a partnership has the authority to represent the partnership to third parties.
D. A partner has authority to deal with third
parties on the behalf of the other partners only if he has written permission
to do so.
E. A partner may be able to legally bind the
partnership to actions even if the other partners are unaware of his actions.
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
42. Pat and Nicole formed Here & There as
a limited liability company. Unless the member owners elect to be treated
otherwise, the Internal Revenue Service will tax the LLC as:
A. An S corporation.
B. A C corporation.
C. A non-taxable entity.
D. A joint venture.
E. A partnership.
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
43. A partnership in which all partners have
mutual agency and unlimited liability is called:
A. Limited partnership.
B. Limited liability partnership.
C. General partnership.
D. S corporation.
E. Limited liability company.
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
44. Carter Pearson is a partner in Event
Promoters. His beginning partnership capital balance for the current year is
$55,000, and his ending partnership capital balance for the current year is
$62,000. His share of this year’s partnership income was $6,250. What is his
partner return on equity?
A. 5.34%
B. 8.93%
C. 10.08%
D. 11.36%
E. 10.68%
Partner Return on Equity = Partners’ Income/Average Partnership Equity
Partner Return on Equity = $6,250[/($55,000 + $62,000)/2] = 0.1068 = 10.68%
Partner Return on Equity = Partners’ Income/Average Partnership Equity
Partner Return on Equity = $6,250[/($55,000 + $62,000)/2] = 0.1068 = 10.68%
AACSB: Analytical Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
45. Design Services is organized as a limited
partnership, with Miko Toori as one of its partners. Miko’s capital account
began the year with a balance of $35,000. During the year, Miko’s share of the
partnership income was $7,500, and Miko received $4,000 in distributions from
the partnership. What is Miko’s partner return on equity?
A. 10.2%
B. 22.7%
C. 19.5%
D. 20.4%
E. 21.4%
Miko’s Ending Equity = Beginning Equity + Share of Income – Distributions
Miko’s Ending Equity = $35,000 + $7,500 – $4,000 = $38,500
Miko’s Ending Equity = Beginning Equity + Share of Income – Distributions
Miko’s Ending Equity = $35,000 + $7,500 – $4,000 = $38,500
Partner Return on Equity = Partners’
Income/Average Partnership Equity
Partner Return on Equity = $7,500/[($35,000 + $38,500)/2] = 0.204 = 20.4%
Partner Return on Equity = $7,500/[($35,000 + $38,500)/2] = 0.204 = 20.4%
AACSB: Analytical Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
46. The following information is available
regarding Grace Smit’s capital account in Enterprise Consulting Group, a
general partnership, for a recent year:
Beginning of the year balance $22,000
Share of partnership income $8,500
Withdrawals made during the year $6,000
Share of partnership income $8,500
Withdrawals made during the year $6,000
What is Smit’s partner return on equity during
the year in question?
A. 36.6%
B. 34.7%
C. 10.8%
D. 11.4%
E. 55.7%
Smit’s Ending Equity = Beginning Equity + Share of Income – Distributions
Smit’s Ending Equity = $22,000 + $8,500 – $6,000 = $24,500
Smit’s Ending Equity = Beginning Equity + Share of Income – Distributions
Smit’s Ending Equity = $22,000 + $8,500 – $6,000 = $24,500
Partner Return on Equity = Partners’
Income/Average Partnership Equity
Partner Return on Equity = $8,500/[($22,000 + $24,500)/2] = 0.366 = 36.6%
Partner Return on Equity = $8,500/[($22,000 + $24,500)/2] = 0.366 = 36.6%
AACSB: Analytical Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
47. Partnership accounting does not:
A. Use a capital account for each partner.
B. Use a withdrawals account for each partner.
C. Allocate net income to each partner
according to the partnership agreement.
D. Allocate net loss to each partner according
to the partnership agreement.
E. Tax the business entity.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
48. Partnership accounting is the same as
accounting for:
A. A sole proprietorship.
B. A corporation.
C. A sole proprietorship, except that separate
capital and withdrawal accounts are kept for each partner.
D. An S corporation.
E. A corporation, except that retained
earnings is used to keep track of partners’ withdrawals.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
49. 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.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
50. The withdrawals account of each partner
is:
A. Closed to that partner’s capital account
with a credit.
B. Closed to that partner’s capital account
with a debit.
C. A permanent account that is not closed.
D. Credited with that partner’s share of net
income.
E. Debited with that partner’s share of net
loss.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
51. R. Stetson contributed $14,000 in cash
plus office equipment valued at $7,000 to the SJ Partnership. The journal entry
to record the transaction for the partnership is:
A. Debit Cash $14,000; debit Office Equipment
$7,000; credit R Stetson, Capital $21,000.
B. Debit Cash $14,000; debit Office Equipment
$7,000; credit SJ Partnership, Capital $21,000.
C. Debit SJ Partnership $21,000; credit R.
Stetson, Capital $21,000.
D. Debit R. Stetson, Capital $21,000; credit
SJ Partnership, Capital $21,000.
E. Debit Cash $14,000; debit Office Equipment
$7,000; credit Common Stock $21,000.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
52. T. Andrews contributed $14,000 in to the T
& B Partnership. The journal entry to record the transaction for the
partnership is:
A. Debit Cash $14,000; credit T & B
Partnership, Capital $14,000.
B. Debit Cash $14,000; credit T. Andrews,
Capital $14,000.
C. Debit T & B Partnership $14,000; credit
T. Andrews, Capital $14,000.
D. Debit T. Andrews, Capital $14,000; credit T
& B Partnership, Capital $14,000.
E. Debit Cash $14,000; credit Common Stock
$14,000.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
53. Forman and Berry are forming a
partnership. Forman will invest a building that currently is being used by
another business owned by Forman. The building has a market value of $80,000.
Also, the partnership will assume responsibility for a $20,000 note secured by
a mortgage on that building. Berry will invest $50,000 cash. For the partnership,
the amounts to be recorded for the building and for Forman’s Capital account
are:
A. Building, $80,000 and Forman, Capital,
$80,000.
B. Building, $60,000 and Forman, Capital,
$60,000.
C. Building, $60,000 and Forman, Capital,
$50,000.
D. Building, $80,000 and Forman, Capital,
$60,000.
E. Building, $60,000 and Forman, Capital,
$80,000.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
54. Maxwell and Smart are forming a
partnership. Maxwell is investing a building that has a market value of
$180,000. However, the building carries a $56,000 mortgage that will be assumed
by the partnership. Smart is investing $120,000 cash. The balance of Maxwell’s
Capital account will be:
A. $180,000.
B. $124,000.
C. $56,000.
D. $64,000.
E. $60,000.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
55. Harvey and Quick have decided to form a
partnership. Harvey is going to contribute a depreciable asset to the
partnership as his equity contribution to the partnership. The following
information regarding the asset to be contributed by Harvey is available:
Historical cost of the asset $76,000
Accumulated depreciation on the asset $40,000
Note payable secured by the asset* $18,000
Agreed-upon market value of the asset $45,000
*will be assumed by the partnership
Accumulated depreciation on the asset $40,000
Note payable secured by the asset* $18,000
Agreed-upon market value of the asset $45,000
*will be assumed by the partnership
Based on this information, Harvey’s beginning
equity balance in the partnership will be:
A. $76,000
B. $36,000
C. $18,000
D. $27,000
E. $45,000
Beginning Equity = Market Value of the Asset – Debt Assumed by the Partnership
Beginning Equity = $45,000 – $18,000 = $27,000
Beginning Equity = Market Value of the Asset – Debt Assumed by the Partnership
Beginning Equity = $45,000 – $18,000 = $27,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
56. Dalworth and Minor have decided to form a
partnership. Minor is going to contribute a depreciable asset to the
partnership as her equity contribution to the partnership. The following
information regarding the asset to be contributed by Minor is available:
Historical cost of the asset $276,000
Accumulated depreciation on the asset $140,000
Note payable secured by the asset and assumed by the partnership $118,000
Agreed-upon market value of the asset $245,000
Accumulated depreciation on the asset $140,000
Note payable secured by the asset and assumed by the partnership $118,000
Agreed-upon market value of the asset $245,000
Based on this information, Minor’s beginning
equity balance in the partnership will be:
A. $276,000
B. $158,000
C. $136,000
D. $127,000
E. $18,000
Beginning Equity = Market Value of the Asset – Debt Assumed by the Partnership
Beginning Equity = $245,000 – $118,000 = $127,000
Beginning Equity = Market Value of the Asset – Debt Assumed by the Partnership
Beginning Equity = $245,000 – $118,000 = $127,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
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.
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
58. In a partnership agreement, if the
partners agreed to an interest allowance of 10% annually on each partner’s
investment, the interest allowance:
A. Is ignored when earnings are not sufficient
to pay interest.
B. Can make up for unequal capital contributions.
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.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
59. Wheadon, Davis, and Singer formed a
partnership with Wheadon contributing $60,000, Davis contributing $50,000 and
Singer 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 thousand) would be credited to Singer’s capital
account?
A. $20,000.
B. $25,000.
C. $30,000.
D. $40,000.
E. $75,000.
Singer’s Share of Income = Partnership Income * Ratio of Capital Investments
Singer’s Share of Income = $75,000 * [$40,000/($60,000 + $50,000 + $40,000)]
Singer’s Share of Income = $75,000 * ($40,000/$150,000) = $20,000
Singer’s Share of Income = Partnership Income * Ratio of Capital Investments
Singer’s Share of Income = $75,000 * [$40,000/($60,000 + $50,000 + $40,000)]
Singer’s Share of Income = $75,000 * ($40,000/$150,000) = $20,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
60. Wheadon, Davis, and Singer formed a
partnership with Wheadon contributing $60,000, Davis contributing $50,000 and
Singer 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 thousand) would be credited to Wheadon’s
capital account?
A. $20,000.
B. $25,000.
C. $30,000.
D. $40,000.
E. $75,000.
Wheadon’s Share of Income = Partnership Income * Ratio of Capital Investments
Wheadon’s Share of Income = $75,000 * [$60,000/($60,000 + $50,000 + $40,000)]
Wheadon’s Share of Income = $75,000 * ($60,000/$150,000) = $30,000
Wheadon’s Share of Income = Partnership Income * Ratio of Capital Investments
Wheadon’s Share of Income = $75,000 * [$60,000/($60,000 + $50,000 + $40,000)]
Wheadon’s Share of Income = $75,000 * ($60,000/$150,000) = $30,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
61. Christie and Jergens formed a partnership
with capital contributions of $300,000 and $400,000, respectively. Their
partnership agreement calls for Christie to receive a $60,000 per year salary.
Also, each partner is to receive an interest allowance equal to 10% of a
partner’s 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
Christie and Jergens’s 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.
Christie Jergens 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
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
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
62. Farmer and Taylor formed a partnership
with capital contributions of $200,000 and $250,000, respectively. Their
partnership agreement calls for Farmer to receive a $70,000 per year salary.
The remaining income or loss is to be divided equally. If the net income for
the current year is $135,000, then Farmer and Taylor’s respective shares are:
A. $67,500; $67,500.
B. $130,000; $5,000.
C. $106,140; $28,860.
D. $90,000; $45,000.
E. $102,500; $32,500.
Farmer Taylor Total
Net income $135,000
Salary allowance $70,000 (70,000)
Balance of income 65,000
Balance divided equally 32,500 32,500 (65,000)
Total $102,500 $32,500 $0
Net income $135,000
Salary allowance $70,000 (70,000)
Balance of income 65,000
Balance divided equally 32,500 32,500 (65,000)
Total $102,500 $32,500 $0
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
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.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Reporting
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Reporting
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
64. Zheng invested $100,000 and Murray
invested $200,000 in a partnership. They agreed to share incomes and losses by
allowing a $60,000 per year salary allowance to Zheng and a $40,000 per year
salary allowance to Murray, 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 $105,000 in income are:
A. $52,500 to Zheng; $52,500 to Murray.
B. $35,000 to Zheng; $70,000 to Murray.
C. $57,500 to Zheng; $47,500 to Murray.
D. $42,500 to Zheng; $62,500 to Murray.
E. $70,000 to Zheng; $60,000 to Murray.
Zheng Murray 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
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
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
65. Brown invested $200,000 and Freeman
invested $150,000 in a partnership. They agreed to 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 $205,000 in income are:
A. $102,500 to Brown; $102,500 to Freeman.
B. $117,143 to Brown; $87,857 to Freeman.
C. $122,500 to Brown; $82,500 to Freeman.
D. $105,000 to Brown; $100,000 to Freeman.
E. $112,750 to Brown; $92,250 to Freeman.
Brown Freeman Total
Net income $205,000
Interest allowance 20,000 15,000 (35,000)
Balance of income 170,000
Balance divided equally 85,000 85,000 (170,000)
Total $105,000 $100,000 $0
Net income $205,000
Interest allowance 20,000 15,000 (35,000)
Balance of income 170,000
Balance divided equally 85,000 85,000 (170,000)
Total $105,000 $100,000 $0
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
66. The partnership agreement for Wilson,
Pickett & Nelson, a general partnership, provided that profits be shared
between the partners in the ratio of their financial contributions to the
partnership. Wilson contributed $100,000, Pickett contributed $50,000 and
Nelson contributed $50,000. In the partnership’s first year of operation, it
incurred a loss of $110,000. What amount of the partnership’s loss, rounded to
the nearest dollar, should be absorbed by Nelson?
A. $50,000
B. $27,500
C. $36,667
D. $0
E. $40,000
Nelson’s share = $50,000/($100,000 + $50,000 + 50,000) = 25.0%
Nelson’s share of loss = $110,000 * 25.0% = $27,500
If the partnership agreement does not specifically address how losses are to be allocated between the partners, then the losses are to be shared in the same manner as profits.
Nelson’s share = $50,000/($100,000 + $50,000 + 50,000) = 25.0%
Nelson’s share of loss = $110,000 * 25.0% = $27,500
If the partnership agreement does not specifically address how losses are to be allocated between the partners, then the losses are to be shared in the same manner as profits.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
67. Olivia Greer is a partner in Made for You.
An analysis of Greer’s capital account indicates that during the most recent
year, she withdrew $30,000 from the partnership. Her share of the partnership’s
net loss was $16,000 and she made an additional equity contribution of $10,000.
Her capital account ended the year at $150,000. What was her capital balance at
the beginning of the year?
A. $154,000
B. $170,000
C. $180,000
D. $186,000
E. $196,000
Ending Balance = Beginning Balance + Contribution – Share of Loss – Withdrawals
$150,000 = Beginning Balance + $10,000 – $16,000 – $30,000
$150,000 = Beginning Balance – $36,000
Beginning Balance = $186,000
Ending Balance = Beginning Balance + Contribution – Share of Loss – Withdrawals
$150,000 = Beginning Balance + $10,000 – $16,000 – $30,000
$150,000 = Beginning Balance – $36,000
Beginning Balance = $186,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
68. The following information is available on
TGR Enterprises, a partnership, for the most recent fiscal year:
Total partnership capital at beginning of the
year $180,000
Partnership net income for the year $150,000
Withdrawals by partners during the year $120,000
Additional investments by partners during the year $60,000
Partnership net income for the year $150,000
Withdrawals by partners during the year $120,000
Additional investments by partners during the year $60,000
There are three partners in TGR Enterprises:
Tracey, Gregory and Rodgers. At the end of the year, the partners’ capital
accounts were in the ratio of 2:1:2, respectively. Compute the ending capital
balances of the three partners.
A. Tracey = $108,000; Gregory = $54,000;
Rodgers = $108,000.
B. Tracey = $90,000; Gregory = $90,000;
Rodgers = $90,000.
C. Tracey = $204,000; Gregory = $102,000;
Rodgers = $204,000.
D. Tracey = $84,000; Gregory = $102,000;
Rodgers = $84,000.
E. Tracey = $60,000; Gregory = $30,000;
Rodgers = $60,000.
Ending Partnership Capital = Beginning Partnership Capital + Partnership Net Income + Aditional Investments – Withdrawals by Partners
Ending Partnership Capital = $180,000 + $150,000 + $60,000 – $120,000 = $270,000
Ending Partnership Capital = Beginning Partnership Capital + Partnership Net Income + Aditional Investments – Withdrawals by Partners
Ending Partnership Capital = $180,000 + $150,000 + $60,000 – $120,000 = $270,000
Based on the partners’ ending capital balances
in the ratio of 2:1:2, the partners would have the following ratios: Tracey has
2/5 of the total, Gregory has 1/5 of the total and Rodgers has 2/5 of the
total. Therefore, Tracey and Rodgers have ending balances of $108,000 ($270,000
* 2/5) and Gregory has an ending balance of $54,000 ($270,000 * 1/5).
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
69. The following information is available on
PDC Enterprises, a partnership, for the most recent fiscal year:
Total partnership capital at beginning of the
year $1,080,000
Partnership net income for the year $1,250,000
Withdrawals by partners during the year $320,000
Additional investments by partners during the year $70,000
Partnership net income for the year $1,250,000
Withdrawals by partners during the year $320,000
Additional investments by partners during the year $70,000
There are three partners in TGR Enterprises:
Pearson, Darling and Cathay. At the end of the year, the partners’ capital
accounts were in the ratio of 2:2:1, respectively. Compute the ending capital
balances of Cathay.
A. $466,000.
B. $402,000.
C. $416,000.
D. $544,000.
E. $388,000.
Ending Partnership Capital = Beginning Partnership Capital + Partnership Net Income + Additional Investments – Withdrawals by Partners
Ending Partnership Capital = $1,080,000 + $1,250,000 + $70,000 – $320,000 = $2,080,000
Pearson ending capital = $2,080,000 * 2/5 = $832,000
Darling ending capital = $2,080,000 * 2/5 = $832,000
Cathay ending capital = $2,080,000 * 1/5 = $416,000
Ending Partnership Capital = Beginning Partnership Capital + Partnership Net Income + Additional Investments – Withdrawals by Partners
Ending Partnership Capital = $1,080,000 + $1,250,000 + $70,000 – $320,000 = $2,080,000
Pearson ending capital = $2,080,000 * 2/5 = $832,000
Darling ending capital = $2,080,000 * 2/5 = $832,000
Cathay ending capital = $2,080,000 * 1/5 = $416,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
70. A partner can withdraw from a partnership
by any of the following means except:
A. Selling his/her interest to another person
for cash.
B. Selling his/her interest to another person
in exchange for assets.
C. Receiving cash from the partnership in the
amount of his/her interest.
D. Receiving assets from the partnership in
the amount of his/her interest.
E. Close the business and liquidate the assets
under the mutual agency principle.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
71. A bonus may be paid in all of the
following situations except:
A. By a new partner when the current value of
a partnership is greater than the recorded amounts of equity.
B. By a withdrawing partner to remaining
partners if the recorded value of the equity is overstated.
C. To a new partner with exceptional talents.
D. By remaining partners to a withdrawing
partner if the recorded equity is understated.
E. By an existing partner to him or herself
when in need of personal cash flow.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
72. When a partner is added to a partnership:
A. The previous partnership ends.
B. The underlying business operations end.
C. The underlying business operations must
close and then re-open.
D. The partnership must continue.
E. The partnership equity always increases.
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
73. A partnership recorded the following
journal entry:
Cash 60,000
B. Founder, Capital 10,000
R. Aqui, Capital 10,000
H. Joiner, Capital 80,000
B. Founder, Capital 10,000
R. Aqui, Capital 10,000
H. Joiner, Capital 80,000
This entry reflects:
A. Acceptance of a new partner who invests
$60,000 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 Founder and Aqui.
E. Withdrawal of $10,000 each by Founder and
Aqui upon the admission of a new partner.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
74. Wright, Bell, and Edison are partners and
share income in a 2:5:3 ratio. The partnership’s capital balances are as
follows: Wright, $33,000, Bell $27,000 and Edison $40,000. Edison decides to
withdraw from the partnership, and the partners agree not to revalue the assets
upon Edison’s retirement. The journal entry to record Edison’s June 1
withdrawal from the partnership if Edison sells his interest to Whitney for
$45,000 after the other two partners approve Whitney as partner is:
A. Debit Edison, Capital $45,000; credit
Whitney, Capital $45,000.
B. Debit Edison, Capital $40,000; credit Cash
$40,000.
C. Debit Edison, Capital $40,000; debit
Wright, Capital $2,500; debit Bell, Capital $2,500; credit Whitney, Capital
$45,000.
D. Debit Edison, Capital $40,000; credit
Whitney, Capital $40,000.
E. Debit Edison, Capital $40,000; debit Cash
$5,000; credit Whitney, Capital $45,000.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
75. Wright, Bell, and Edison are partners and
share income in a 2:5:3 ratio. The partnership’s capital balances are as
follows: Wright, $33,000, Bell $27,000 and Edison $40,000. Edison decides to
withdraw from the partnership, and the partners agree not to revalue the assets
upon Edison’s retirement. The journal entry to record Edison’s June 1
withdrawal from the partnership if Edison is paid $40,000 for his equity is:
A. Debit Edison, Capital $40,000; credit Cash
$40,000.
B. Debit Wright, Capital $20,000; Debit Bell,
Capital $20,000; credit Cash $40,000.
C. Debit Wright, Capital $20,000; Debit Bell,
Capital $20,000; credit Edison, Capital $40,000.
D. Debit Edison, Capital $40,000; credit
Wright, Capital $20,000; credit Bell, Capital $20,000.
E. Debit Cash $40,000; credit Edison, Capital
$40,000.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
76. Hewlett and Martin are partners. Hewlett’s
capital balance in the partnership is $64,000, and Martin’s capital balance
$67,000. Hewlett and Martin have agreed to share equally in income or loss. The
existing partners agree to accept Black with a 20% interest. Black will invest
$35,000 in the partnership. The bonus that is granted to Hewlett and Martin
equals:
A. $900 each.
B. $1,500 each.
C. $600 each.
D. 600 to Hewlett; $900 to Martin.
E. $0, because Hewlett and Martin actually
grant a bonus to Black.
Total Partnership Equity = Hewlett’s Capital + Martin’s Capital + Black’s Investment
Total Partnership Equity = $64,000 + $67,000 + $35,000 = $166,000
Total Partnership Equity = Hewlett’s Capital + Martin’s Capital + Black’s Investment
Total Partnership Equity = $64,000 + $67,000 + $35,000 = $166,000
Equity for Black = $166,000 * 0.20 (or 20%) =
$33,200
Bonus to Hewlett and Martin = Cash Investment
– Black’s Capital (Equity)
Bonus to Hewlett and Martin = $35,000 – $33,200 = $1,800, split equally
Bonus to Hewlett and Martin = $35,000 – $33,200 = $1,800, split equally
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
77. Hewlett and Martin are partners. Hewlett’s
capital balance in the partnership is $64,000, and Martin’s capital balance
$61,000. Hewlett and Martin have agreed to share equally in income or loss.
Hewlett and Martin agree to accept Black with a 25% interest. Black will invest
$35,000 in the partnership. The bonus that is granted to Black equals:
A. $5,000.
B. $2,500.
C. $6,667.
D. $3,333.
E. $0, because Black must actually grant a
bonus to Hewlett and Martin.
Total Partnership Equity = Hewlett’s Capital + Martin’s Capital + Black’s Investment
Total Partnership Equity = $64,000 + $61,000 + $35,000 = $160,000
Total Partnership Equity = Hewlett’s Capital + Martin’s Capital + Black’s Investment
Total Partnership Equity = $64,000 + $61,000 + $35,000 = $160,000
Equity for Black = $160,000 * 0.25 (or 25%) =
$40,000
Bonus to Black = Black’s Capital (Equity) –
Cash Investment
Bonus to Black = $40,000 – $35,000 = $5,000
Bonus to Black = $40,000 – $35,000 = $5,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
78. Masters, Hardy, and Rowen are dissolving
their partnership. Their partnership agreement allocates income and losses
equally among the partners. The current period’s ending capital account
balances are Masters, $15,000; Hardy, $15,000; Rowen, $(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. Rowen pays $2,000
to cover the deficiency in his account. The general journal entry to record the
final distribution would be:
A. Debit Masters, Capital $15,000; debit
Hardy, Capital $15,000; credit Cash $30,000.
B. Debit Masters, Capital $14,000; debit
Hardy, Capital $14,000; credit Cash $28,000.
C. Debit Masters, Capital $15,000; debit
Hardy, Capital $15,000; credit Rowen, Capital $2,000; credit Cash $28,000.
D. Debit Cash $28,000; debit Rowen, Capital
$2,000; credit Masters, Capital $15,000; credit Hardy, Capital $15,000.
E. Debit Masters, Capital $9,334; debit Hardy,
Capital $9,333; debit Rowen, Capital $9,333; credit Cash $28,000.
Capital
Cash Masters Hardy Rowen
$28,000 $15,000 $15,000 $(2,000)
Contribution by Rowen 2,000 2,000
Allocate cash (30,000) (15,000) (15,000) 0
Cash Masters Hardy Rowen
$28,000 $15,000 $15,000 $(2,000)
Contribution by Rowen 2,000 2,000
Allocate cash (30,000) (15,000) (15,000) 0
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
79. Masters, Hardy, and Rowen are dissolving
their partnership. Their partnership agreement allocates income and losses
equally among the partners. The current period’s ending capital account
balances are Masters, $15,000; Hardy, $15,000; Rowen, $30,000. After all the
assets are sold and liabilities are paid, but before any contributions to cover
any deficiencies, there is $54,000 in cash to be distributed. The general
journal entry to record the final distribution would be:
A. Debit Masters, Capital $18,000; debit
Hardy, Capital $18,000; debit Rowen, Capital $18,000; credit Cash $54,000.
B. Debit Masters, Capital $13,500; debit
Hardy, Capital $13,500; debit Rowen, Capital $27,000; credit Cash $54,000.
C. Debit Masters, Capital $15,000; debit
Hardy, Capital $15,000; debit Rowen, Capital $30,000; credit Gain from
Liquidation $6,000; credit Cash $54,000.
D. Debit Cash $54,000; credit Rowen, Capital
$13,500; credit Masters, Capital $13,500; credit Hardy, Capital $27,000.
E. Debit Masters, Capital $15,000; debit
Hardy, Capital $15,000; debit Rowen, Capital $30,000; credit Retained Earnings
$6000; credit Cash $54,000.
Capital
Cash Masters Hardy Rowen
$54,000
Percent of capital balances 25% 25% 50%
Allocate cash (54,000) (13,500) (13,500) (27,000)
Cash Masters Hardy Rowen
$54,000
Percent of capital balances 25% 25% 50%
Allocate cash (54,000) (13,500) (13,500) (27,000)
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
80. When a partnership is liquidated:
A. Noncash assets are distributed to partners.
B. Any gain or loss on liquidation is
allocated to the partner with the highest capital account balance.
C. Liabilities are paid or settled.
D. Any remaining cash is distributed to the
partners equally.
E. The business may continue to operate.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
81. 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.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
82. 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 before distribution of cash.
C. The partnership ends before distribution of
cash.
D. The deficient partner is relieved of the
liability.
E. The remaining partners must wait for the
deficiency to be paid before cash is distributed.
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
83. Henry, Luther, and Gage are dissolving
their partnership. Their partnership agreement allocates each partner 1/3 of
all income and losses. The current period’s ending capital account balances are
Henry, $45,000; Luther, $37,000; and Gage, $(5,000). After all assets are sold
and liabilities are paid, there is $77,000 in cash to be distributed. Gage is
unable to pay the deficiency. The journal entry to record the distribution
should be:
A. Debit Henry, Capital $25,667; debit Luther,
Capital $25,667; debit Gage, Capital $25,666; credit Cash $77,000.
B. Debit Henry, Capital $42,500; debit Luther,
Capital $34,500; credit Cash $77,000.
C. Debit Henry, Capital $45,000; debit Luther,
Capital $37,000; credit Gage, Capital $5,000; credit Cash $77,000.
D. Debit Cash $77,000, debit Gage, Capital
$5,000, credit Henry, Capital $45,000, credit Luther, Capital $37,000.
E. Debit Cash $77,000; credit Henry, Capital
$25,667; credit Luther, Capital $25,667; credit Gage, Capital $25,666.
Capital
Cash Henry Luther Gage
$77,000 $45,000 $37,000 $(5,000)
Allocate deficiency (2,500) (2,500) 5,000
Allocate cash (77,000) (42,500) (34,500) 0
Cash Henry Luther Gage
$77,000 $45,000 $37,000 $(5,000)
Allocate deficiency (2,500) (2,500) 5,000
Allocate cash (77,000) (42,500) (34,500) 0
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
84. Henry, Luther, and Gage are dissolving
their partnership. Their partnership agreement allocates each partner 1/3 of
all income and losses. The current period’s ending capital account balances are
Henry, $45,000; Luther, $37,000; and Gage, $(5,000). After all assets are sold
and liabilities are paid, there is $77,000 in cash to be distributed. Gage is
unable to pay the deficiency. What amount of cash will Gage receive upon
liquidation?
A. $25,667.
B. $20,667.
C. $30,667.
D. Gage will be invoiced for $5,000.
E. $0.
Capital
Cash Henry Luther Gage
$77,000 $45,000 $37,000 $(5,000)
Allocate deficiency (2,500) (2,500) 5,000
Allocate cash (77,000) (42,500) (34,500) 0
Cash Henry Luther Gage
$77,000 $45,000 $37,000 $(5,000)
Allocate deficiency (2,500) (2,500) 5,000
Allocate cash (77,000) (42,500) (34,500) 0
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
85. Fontaine and Monroe are forming a partnership.
Fontaine invests a building that has a market value of $250,000; the
partnership assumes responsibility for a $75,000 note secured by a mortgage on
the property. Monroe invests $100,000 in cash and equipment that has a market
value of $55,000. For the partnership, the amounts recorded for the building
and for Fontaine’s Capital account are:
A. Building $250,000; Fontaine, Capital
$250,000.
B. Building $175,000; Fontaine, Capital
$175,000.
C. Building $250,000; Fontaine, Capital
$75,000.
D. Building $250,000; Fontaine, Capital
$175,000.
E. Building $175,000; Fontaine, Capital
$75,000.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
86. Fontaine and Monroe are forming a
partnership. Fontaine invests a building that has a market value of $250,000;
the partnership assumes responsibility for a $75,000 note secured by a mortgage
on the property. Monroe invests $100,000 in cash and equipment that has a
market value of $55,000. For the partnership, the amounts recorded for
Fontaine’s Capital account and for Monroe’s Capital account are:
A. Fontaine, Capital $175; Monroe, Capital
$45,000.
B. Fontaine, Capital $0; Monroe, Capital
$100,000.
C. Fontaine, Capital $250,000; Monroe, Capital
$100,000.
D. Fontaine, Capital $250,000; Monroe, Capital
$155,000.
E. Fontaine, Capital $175,000; Monroe, Capital
$155,000.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
87. Fontaine and Monroe are forming a
partnership. Fontaine invests a building that has a market value of $250,000;
the partnership assumes responsibility for a $75,000 note secured by a mortgage
on the property. Monroe invests $100,000 in cash and equipment that has a
market value of $55,000. For the partnership, the amounts recorded for total
assets and for total capital account are:
A. Total assets $405,000; total capital
$330,000.
B. Total assets $350,000; total capital
$350,000.
C. Total assets $350,000; total capital
$275,000.
D. Total assets $305,000; total capital
$230,000.
E. Total assets $405,000; total capital
$305,000.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
88. Cox, North, and Lee form a partnership.
Cox contributes $180,000, North contributes $150,000, and Lee contributes
$270,000. Their partnership agreement calls for the income or loss division to
be based on the ratio of capital invested. If the partnership reports income of
$150,000 for its first year, what amount of income is credited to Cox’s capital
account?
A. $50,000.
B. $64,286.
C. $45,000.
D. $36,000.
E. $60,000.
Cox’s Share of Income = Partnership Income * Ratio of Capital Investments
Cox’s Share of Income = $150,000 *[$180,000/($180,000 + $150,000 + $270,000)]
Cox’s Share of Income = $150,000 * ($180,000/$600,000) = $45,000
Cox’s Share of Income = Partnership Income * Ratio of Capital Investments
Cox’s Share of Income = $150,000 *[$180,000/($180,000 + $150,000 + $270,000)]
Cox’s Share of Income = $150,000 * ($180,000/$600,000) = $45,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
89. Cox, North, and Lee form a partnership.
Cox contributes $180,000, North contributes $150,000, and Lee contributes
$270,000. Their partnership agreement calls for the income or loss division to
be based on the ratio of capital invested. If the partnership reports income of
$150,000 for its first year, what amount of income is credited to Lee’s capital
account?
A. $50,000.
B. $67,500.
C. $45,000.
D. $54,000.
E. $60,000.
Lee’s Share of Income = Partnership Income * Ratio of Capital Investments
Lee’s Share of Income = $150,000 * [$270,000/($180,000 + $150,000 + $270,000)]
Lee’s Share of Income = $150,000 * ($270,000/$600,000) = $67,500
Lee’s Share of Income = Partnership Income * Ratio of Capital Investments
Lee’s Share of Income = $150,000 * [$270,000/($180,000 + $150,000 + $270,000)]
Lee’s Share of Income = $150,000 * ($270,000/$600,000) = $67,500
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
90. Cox, North, and Lee form a partnership.
Cox contributes $180,000, North contributes $150,000, and Lee contributes $270,000.
Their partnership agreement calls for a 5% interest allowance on the partner’s
capital balances with the remaining income or loss to be allocated equally. If
the partnership reports income of $150,000 for its first year, what amount of
income is credited to North’s capital account?
A. $50,000.
B. $63,500.
C. $61,500.
D. $47,500.
E. $45,000.
Interest Allowance = ($180,000 + $150,000 + $270,000) * 0.05 (5%) = $30,000
Interest Allowance = ($180,000 + $150,000 + $270,000) * 0.05 (5%) = $30,000
Share of Income = $150,000 – $30,000 (Interest
Allowance) = $120,000/3 = $40,000 remainder divided equally
North’s Interest Allowance = North Capital
Investment * 0.05 (5%) = $150,000 * 0.05 = $7,500
North’s Share of Income = Remainder Divided
Equally + Interest Allowance
North’s Share of Income = $40,000 + $7,500 = $47,500
North’s Share of Income = $40,000 + $7,500 = $47,500
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
91. Cox, North, and Lee form a partnership.
Cox contributes $180,000, North contributes $150,000, and Lee contributes
$270,000. Their partnership agreement calls for a 5% interest allowance on the
partner’s capital balances with the remaining income or loss to be allocated
equally. If the partnership reports income of $174,000 for its first year, what
amount of income is credited to Lee’s capital account?
A. $58,000.
B. $57,000.
C. $61,500.
D. $55,500.
E. $48,000.
Interest Allowance = ($180,000 + $150,000 + $270,000) * 0.05 (5%) = $30,000
Share of Income = $174,000 – $30,000 (Interest Allowance) = $144,000/3 = $48,000
remainder divided equally
Interest Allowance = ($180,000 + $150,000 + $270,000) * 0.05 (5%) = $30,000
Share of Income = $174,000 – $30,000 (Interest Allowance) = $144,000/3 = $48,000
remainder divided equally
Lee’s Interest Allowance = Lee Capital
Investment * 0.05 (5%) = $270,000 * 0.05 (5%) = $13,500
Lee’s Share of Income = Remainder Divided Equally + Interest Allowance
Lee’s Share of Income = $48,000 + $13,500 = $61,500
Lee’s Share of Income = Remainder Divided Equally + Interest Allowance
Lee’s Share of Income = $48,000 + $13,500 = $61,500
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
92. Mace and Bowen are partners and share
equally in income or loss. Mace’s current capital balance is $135,000 and
Bowen’s is $120,000. Mace and Bowen agree to accept Kent with a 30% interest in
the partnership. Kent invests $115,000 in the partnership. The amount credited
to Kent’s capital account is:
A. $111,000.
B. $115,000.
C. $92,500.
D. $120,000.
E. $119,000.
Total Partnership Equity = Mace’s Capital + Bowen’s Capital + Kent’s Investment
Total Partnership Equity = $135,000 + $120,000 + $115,000 = $370,000
Total Partnership Equity = Mace’s Capital + Bowen’s Capital + Kent’s Investment
Total Partnership Equity = $135,000 + $120,000 + $115,000 = $370,000
Equity for Kent = $370,000 * 0.30 (or 30%) =
$111,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
93. Mace and Bowen are partners and share
equally in income or loss. Mace’s current capital balance is $135,000 and
Bowen’s is $120,000. Mace and Bowen agree to accept Kent with a 30% interest in
the partnership. Kent invests $115,000 in the partnership. The balances in
Mace’s and Bowen’s capital accounts after admission of the new partner equal:
A. Mace $135,000; Bowen $120,000.
B. Mace $137,000; Bowen $122,000.
C. Mace $133,000; Bowen $118,000.
D. Mace $139,000; Bowen $120,000.
E. Mace $135,000; Bowen $124,000.
Total Partnership Equity = Mace’s Capital + Bowen’s Capital + Kent’s Investment
Total Partnership Equity = $135,000 + $120,000 + $115,000 = $370,000
Total Partnership Equity = Mace’s Capital + Bowen’s Capital + Kent’s Investment
Total Partnership Equity = $135,000 + $120,000 + $115,000 = $370,000
Equity for Kent = $370,000 * 0.30 (or 30%) =
$111,000
Bonus to Mace and Bowen = Cash Investment –
Kent’s Capital (Equity)
Bonus to Mace and Bowen = $115,000 – $111,000 = $4,000, split equally
Bonus to Mace and Bowen = $115,000 – $111,000 = $4,000, split equally
Mace’s Capital Balance = $135,000 + $2,000 =
$137,000
Bowen’s Capital Balance = $120,000 + $2,000 = $122,000
Bowen’s Capital Balance = $120,000 + $2,000 = $122,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
94. Peters and Chong are partners and share
equally in income or loss. Peters’ current capital balance is $140,000 and
Chong’s is $130,000. Peters and Chong agree to accept Aaron with a 30% interest
in the partnership. Aaron invests $98,000 in the partnership. The balances in
Peters’s and Chong’s capital accounts after admission of the new partner equal:
A. Peters $140,000; Chong $130,000.
B. Peters $146,200; Chong $136,200.
C. Peters $145,000; Chong $135,000.
D. Peters $133,800; Chong $123,800.
E. Peters $166,027; Chong $156,027.
Total Partnership Equity = Peters’ Capital + Chong’s Capital + Aaron’s Investment
Total Partnership Equity = $140,000 + $130,000 + $98,000 = $368,000
Total Partnership Equity = Peters’ Capital + Chong’s Capital + Aaron’s Investment
Total Partnership Equity = $140,000 + $130,000 + $98,000 = $368,000
Equity for Aaron = $368,000 * 0.30 (or 30%) =
$110,400
Bonus from Peters and Chong = Cash Investment
– Aaron’s Capital (Equity)
Bonus from Peters and Chong = $98,000 – $110,400 = $12,400, split equally and absorbed by original partners
Bonus from Peters and Chong = $98,000 – $110,400 = $12,400, split equally and absorbed by original partners
Peters’s Capital Balance = $140,000 – $6,200 =
$133,800
Chong’s Capital Balance = $130,000 – $6,200 = $123,800
Chong’s Capital Balance = $130,000 – $6,200 = $123,800
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
95. Peters and Chong are partners and share
equally in income or loss. Peters’ current capital balance is $140,000 and
Chong’s is $130,000. Peters and Chong agree to accept Aaron with a 30% interest
in the partnership. Aaron invests $98,000 in the partnership. The amount
credited to Aaron’s capital account is:
A. $81,000.
B. $102,600.
C. $110,400.
D. $98,000.
E. $114,533.
Total Partnership Equity = Peters’s Capital + Chong’s Capital + Aaron’s Investment
Total Partnership Equity = $140,000 + $130,000 + $98,000 = $368,000
Total Partnership Equity = Peters’s Capital + Chong’s Capital + Aaron’s Investment
Total Partnership Equity = $140,000 + $130,000 + $98,000 = $368,000
Equity for Aaron = $368,000 * 0.30 (or 30%) =
$110,400
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
96. Peters, Chong, and Aaron are dissolving
their partnership. Their partnership agreement allocates each partner an equal
share of all income and losses. The current period’s ending capital account
balances are Peters, $54,000; Chong, $42,000; and Aaron, $(2,000). After all
assets are sold and liabilities are paid, there is $94,000 in cash to be
distributed. Aaron is unable to pay the deficiency. The journal entry to record
the distribution should be:
A. Debit Peters, Capital $54,000; debit Chong,
Capital $40,000; credit Cash $94,000.
B. Debit Peters, Capital $54,000; debit Chong,
Capital $42,000; credit Cash $96,000.
C. Debit Peters, Capital $53,000; debit Chong,
Capital $41,000; credit Cash $94,000.
D. Debit Cash $94,000, debit Aaron, Capital
$2,000, credit Peters, Capital $54,000, credit Chong, Capital $42,000.
E. Debit Cash $94,000; credit Peters, Capital
$47,000; credit Chong, Capital $47,000.
Capital
Cash Peters Chong Aaron
$94,000 $54,000 $42,000 $(2,000)
Allocate deficiency (1,000) (1,000) 2,000
Allocate cash (94,000) (53,000) (41,000) 0
Cash Peters Chong Aaron
$94,000 $54,000 $42,000 $(2,000)
Allocate deficiency (1,000) (1,000) 2,000
Allocate cash (94,000) (53,000) (41,000) 0
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
97. Barber and Atkins are partners in an
accounting firm and share net income and loss equally. Barber’s beginning
partnership capital balance for the current year is $285,000, and Atkins’
beginning partnership capital balance for the current year is $370,000. The
partnership had net income of $250,000 for the year. Barber withdrew $90,000
during the year and Atkins withdrew $100,000. What is Barber’s ending equity?
A. $357,500
B. $362,500
C. $445,000
D. $320,000
E. $195,000
Barber’s Ending Equity = Beginning Equity + Share of Income – Distributions
Barber’s Ending Equity = $285,000 + $125,000 – $90,000 = $320,000
Barber’s Ending Equity = Beginning Equity + Share of Income – Distributions
Barber’s Ending Equity = $285,000 + $125,000 – $90,000 = $320,000
AACSB: Analytical Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
98. Barber and Atkins are partners in an
accounting firm and share net income and loss equally. Barber’s beginning
partnership capital balance for the current year is $285,000, and Atkins’
beginning partnership capital balance for the current year is $370,000. The
partnership had net income of $250,000 for the year. Barber withdrew $90,000
during the year and Atkins withdrew $100,000. What is Barber’s return on
equity?
A. 41.3%
B. 43.9%
C. 32.7%
D. 33.8%
E. 36.5%
Barber’s Ending Equity = Beginning Equity + Share of Income – Distributions
Barber’s Ending Equity = $285,000 + $125,000 – $90,000 = $320,000
Barber’s Ending Equity = Beginning Equity + Share of Income – Distributions
Barber’s Ending Equity = $285,000 + $125,000 – $90,000 = $320,000
Partner Return on Equity = Partners’
Income/Average Partnership Equity
Partner Return on Equity = $125,000/[($285,000 + $320,000)/2] = 0.413 = 41.3%
Partner Return on Equity = $125,000/[($285,000 + $320,000)/2] = 0.413 = 41.3%
AACSB: Analytical Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
99. Barber and Atkins are partners in an
accounting firm and share net income and loss equally. Barber’s beginning
partnership capital balance for the current year is $285,000, and Atkins’
beginning partnership capital balance for the current year is $370,000. The
partnership had net income of $250,000 for the year. Barber withdrew $90,000
during the year and Atkins withdrew $100,000. What is Atkins’s return on equity?
A. 41.3%
B. 43.9%
C. 32.7%
D. 33.8%
E. 36.5%
Atkins’ Ending Equity = Beginning Equity + Share of Income – Distributions
Atkins’ Ending Equity = $370,000 + $125,000 – $100,000 = $395,000
Atkins’ Ending Equity = Beginning Equity + Share of Income – Distributions
Atkins’ Ending Equity = $370,000 + $125,000 – $100,000 = $395,000
Partner Return on Equity = Partners’
Income/Average Partnership Equity
Partner Return on Equity = $125,000/[($370,000 + $395,000)/2] = 0.327 = 32.7%
Partner Return on Equity = $125,000/[($370,000 + $395,000)/2] = 0.327 = 32.7%
AACSB: Analytical Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
100. Fellows and Marshall are partners in an
accounting firm and share net income and loss equally. Fellows’ beginning
partnership capital balance for the current year is $185,000, and Marshall’s
beginning partnership capital balance for the current year is $260,000. The
partnership had net income of $350,000 for the year. Fellows withdrew $80,000
during the year and Marshall withdrew $70,000. What is Marshall’s return on
equity?
A. 67.3%
B. 60.3%
C. 78.7%
D. 54.3%
E. 56.0%
Marshall’s Ending Equity = Beginning Equity + Share of Income – Distributions
Marshall’s Ending Equity = $260,000 + $175,000 – $70,000 = $365,000
Marshall’s Ending Equity = Beginning Equity + Share of Income – Distributions
Marshall’s Ending Equity = $260,000 + $175,000 – $70,000 = $365,000
Partner Return on Equity = Partners’
Income/Average Partnership Equity
Partner Return on Equity = $175,000/[($260,000 + $365,000)/2] = 0.56 = 56.0%
Partner Return on Equity = $175,000/[($260,000 + $365,000)/2] = 0.56 = 56.0%
AACSB: Analytical Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
101. If a company wants to protect its three
investors against personal liability risk, which of the following business
forms would not be a suitable option?
A. C Corporation
B. S Corporation
C. Limited liability partnership
D. Partnership
E. Limited liability company
AACSB: Communication
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Legal
AICPA: FN Decision Making
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
102. Reno contributed $104,000 in cash plus
equipment valued at $27,000 to the RD Partnership. The journal entry to record
the transaction for the partnership is:
A. Debit Cash $104,000; debit Equipment
$27,000; credit RD Partnership, Capital $131,000.
B. Debit Cash $104,000; debit Equipment
$27,000; credit Common Stock $131,000.
C. Debit Cash $104,000; debit Equipment
$27,000; credit Reno, Capital $131,000.
D. Debit Reno, Capital $131,000; credit RD
Partnership, Capital $131,000.
E. Debit RD Partnership, Capital $131,000;
credit Reno, Capital $131,000.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
103. Bloom and Plant organize a partnership on
January 1. Bloom’s initial investment consists of $800 cash, $1,700 equipment
and a $500 note payable reflecting a bank loan for the new business. Plant’s
initial investment is cash of $2,000. These amounts are the values agreed on by
both partners. The journal entry to record Bloom’s investment is:
A. Debit Cash $800; debit Equipment $1,700;
credit Note Payable $500; credit Bloom, Capital $2,000.
B. Debit Cash $2,000; credit Bloom, Capital
$2,000.
C. Debit Cash $800; debit Equipment $1,700;
credit Bloom, Capital $2,500.
D. Debit Cash $800; debit Equipment $1,200;
credit Bloom, Capital $2,000.
E. Debit Bloom, Capital $3,000; credit Common
Stock $3,000.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
104. Bloom and Plant organize a partnership on
January 1. Bloom’s initial investment consists of $800 cash, $1,700 equipment
and a $500 note payable reflecting a bank loan for the new business. Plant’s
initial investment is cash of $2,000. These amounts are the values agreed on by
both partners. The journal entry to record Plant’s investment is:
A. Debit Cash $1,500; debit Note Payable $500;
credit Plant, Capital $2,000.
B. Debit Cash $2,000; credit Note Payable
$500, credit Plant, Capital $1,500.
C. Debit Bloom, Capital $2,000; credit Cash
$2,000.
D. Debit Cash $2,500; credit Note Payable
$500; credit Plant, Capital $2,500.
E. Debit Cash $2,000; credit Plant, Capital
$2,000.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
105. Wallace and Simpson formed a partnership
with Wallace contributing $60,000 and Simpson contributing $40,000. Their
partnership agreement calls for the income (loss) division to be based on the
ratio of capital investments. The partnership had income of $150,000 for its
first year of operation. When the Income Summary is closed, the journal entry
to allocate partner income is:
A. Debit Income Summary $150,000; credit
Wallace, Capital $75,000; credit Simpson, Capital $75,000.
B. Debit Wallace, Capital $75,000; debit
Simpson, Capital $75,000; credit Income Summary $150,000.
C. Debit Income Summary $150,000; credit
Wallace, Capital $90,000; credit Simpson, Capital $60,000.
D. Debit Cash $150,000; credit Wallace,
Capital $90,000; credit Simpson, Capital $60,000.
E. Debit Wallace, Capital $90,000; debit
Simpson, Capital $60,000; credit Cash $150,000.
Partner’s Share of Income = Partnership Income * Ratio of Capital Investments
Wallace’s Share of Income = $150,000 * [$60,000/($60,000 + $40,000)] = $90,000
Simpson’s Share of Income = $150,000 * [$40,000/($60,000 + $40,000]) = $60,000
Partner’s Share of Income = Partnership Income * Ratio of Capital Investments
Wallace’s Share of Income = $150,000 * [$60,000/($60,000 + $40,000)] = $90,000
Simpson’s Share of Income = $150,000 * [$40,000/($60,000 + $40,000]) = $60,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
106. Wallace and Simpson formed a partnership
with Wallace contributing $60,000 and Simpson contributing $40,000. Their
partnership agreement calls for the income (loss) division to be based on the
ratio of capital investments. Wallace sold one-half of his partnership interest
to Prince for $55,000 when his capital balance was $78,000. The partnership
would record the admission of Prince into the partnership as:
A. Debit Wallace, Capital $55,000; credit
Prince, Capital $55,000.
B. Debit Wallace, Capital $39,000; credit
Prince, Capital $39,000.
C. Debit Prince, Capital $55,000; credit
Wallace, Capital $55,000.
D. Debit Wallace, Capital $30,000; credit
Prince, Capital $30,000.
E. Debit Wallace, Capital $39,000; debit Cash
$16,000; credit Prince, Capital $55,000.
Wallace’s capital balance at the time of the transaction $78,000 * ½ = $39,000.
The cash received by Wallace from Prince is a personal transaction.
Wallace’s capital balance at the time of the transaction $78,000 * ½ = $39,000.
The cash received by Wallace from Prince is a personal transaction.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
107. Wallace, Simpson, and Prince are partners
and share income and losses in a 3:4:3 ratio. The partnership’s capital
balances are Wallace, $68,000; Simpson, $90,000; and Prince, $42,000. Royal is
admitted to the partnership on July 1 with a 20% equity and invests $50,000.
The partnership would record the admission of Royal into the partnership as:
A. Debit Wallace, Capital $15,000; debit
Simpson, Capital, $20,000; debit Prince, Capital $15,000; credit Royal, Capital
$50,000.
B. Debit Cash $20,000; credit Prince, Capital
$20,000.
C. Debit Cash $40,000; debit Wallace, Capital
$3,000; debit Simpson, Capital, $4,000; debit Prince, Capital $3,000; credit
Royal, Capital $50,000.
D. Debit Cash $50,000; credit Royal, Capital
$50,000.
E. Debit Cash $50,000; credit Simpson, Capital
$10,000, credit Royal, Capital $40,000.
($68,000 + $90,000 + $42,000 + 50,000) * 20% = $50,000.
Since the contribution by Royal is equal to 20% of total equity, no bonus is involved.
($68,000 + $90,000 + $42,000 + 50,000) * 20% = $50,000.
Since the contribution by Royal is equal to 20% of total equity, no bonus is involved.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
Matching Questions
108. Match each of the following terms with
the appropriate definitions.
1. The legal relationship among partners
whereby each partner can commit or bind the partnership to any contract within
the scope of the partnership’s business. Statement of partners’ equity 4
2. A corporation with 100 or fewer stockholders that can elect to be treated as a partnership for income tax purposes but retain the same limited liability as other corporations. Limited partnership 7
3. The legal relationship among general partners that makes each of them personally responsible for paying the debts of the partnership if the partnership cannot pay. Limited liability partnership 5
4. 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. Unlimited liability of partners 3
5. A partnership that protects innocent partners from malpractice or negligence claims resulting from the acts of another partner. Partnership contract 8
6. A corporation that does not qualify for nor elect to be treated as a partnership for income tax purposes and therefore is subject to income taxes. Partnership 10
7. 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. General partner 9
8. The agreement between partners that sets terms under which the affairs of the partnership are conducted. Mutual agency 1
9. A partner who assumes unlimited liability for the debts of the partnership. C corporation 6
10. An unincorporated association of two or more persons to pursue a business for profit as co-owners. S corporation 2
2. A corporation with 100 or fewer stockholders that can elect to be treated as a partnership for income tax purposes but retain the same limited liability as other corporations. Limited partnership 7
3. The legal relationship among general partners that makes each of them personally responsible for paying the debts of the partnership if the partnership cannot pay. Limited liability partnership 5
4. 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. Unlimited liability of partners 3
5. A partnership that protects innocent partners from malpractice or negligence claims resulting from the acts of another partner. Partnership contract 8
6. A corporation that does not qualify for nor elect to be treated as a partnership for income tax purposes and therefore is subject to income taxes. Partnership 10
7. 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. General partner 9
8. The agreement between partners that sets terms under which the affairs of the partnership are conducted. Mutual agency 1
9. A partner who assumes unlimited liability for the debts of the partnership. C corporation 6
10. An unincorporated association of two or more persons to pursue a business for profit as co-owners. S corporation 2
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
Short Answer Questions
109. Identify and discuss the key
characteristics of partnerships. Also, identify other organizations that
possess partnership characteristics.
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 have partnership characteristics related to taxability and/or liability
of the partners.
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
110. Define the partner return on equity ratio
and explain how a specific partner would use this ratio.
The partner return on equity ratio is
calculated by dividing the partner’s 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.
AACSB: Communication
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
111. How are partners’ investments in a
partnership recorded?
When partners invest in a partnership, their
individual contributions are credited to each partner’s 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 and reduce their capital
investment.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
112. Discuss the options for the allocation of
income and loss among partners, including with and without a partnership
agreement.
A partnership agreement should specify how to
allocate partnership income or loss among partners. Allocation can be made
based on stated ratios, capital balances, salary allowances, interest
allowances or a combination of the above methods. In the absence of a
partnership agreement, income and loss are shared equally by the partners.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
113. What are the ways that a new partner can
be admitted to an existing partnership? Explain how to account for the
admission of the new partner under each of these circumstances.
A new partner may purchase a partnership
interest from one or more existing partners. In this case, a capital account is
established for the new partner equal to the portion of the existing partners’
interest that was purchased from that partner or partners. This transaction is
a personal transaction between one or more current partners and the new
partner. A new partner may invest assets in the existing partnership. This is a
transaction between the new partner and the partnership. In this case, a capital
account is established for the new partner equal to the portion of the
partnership purchased. When the current value of a partnership is greater than
the recorded amounts of equity, the partners usually require the new partner to
pay a bonus for the privilege of joining. When the partnership needs additional
cash or the new partner has exceptional talents, the existing partners may
grant a bonus to the new partner.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
114. What are the ways a partner can withdraw
from a partnership? Explain how to account for the withdrawal of a current partner
from a partnership.
A partner may sell his or her interest in the
partnership to a new partner who pays for it in cash or other assets. In this
case, the partnership debits the old partner’s capital account and credits the
new partner’s capital account. A partner may also withdraw and have cash or
other assets of the partnership distributed to him or her in settlement of his
or her interest. If the recorded value of the withdrawing partner’s interest is
overstated, then the withdrawing partner would give the remaining partners a
bonus. If the withdrawing partner’s interest is understated, the withdrawing
partner receives a bonus from the remaining partners.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Admission and Withdrawal of Partners
115. Explain the steps involved in the
liquidation of a partnership.
Four steps are involved in the liquidation
process: (1) Record the sale of noncash assets for cash and any gain or loss
from their liquidation; (2) Allocate any gains or losses from liquidation to
the partners’ capital accounts using their income-and-loss sharing ratio; (3)
Liabilities of the partnership are paid or settled; and, (4) Any remaining cash
is distributed to the partners based on their capital balances.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
116. What factors should be considered before
establishing a partnership?
Anyone considering forming a partnership would
be wise to consider the manner in which partnerships are taxed, the mutual
agency aspect of partnerships, the unlimited liability aspect of partnerships
and the fact that partnership assets are considered to be jointly owned by all
partners. Moreover, a formal, written partnership agreement should be developed
to detail each partner’s expectations.
AACSB: Communication
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
Essay Questions
117. Cinema Products LP is organized as a
limited partnership that sells movie props. Information related to capital
balances is given below. Compute the partner return on equity for each limited
partner. How would each partner evaluate the success of the partnership? What
would you recommend the partners do with respect to additional investments or
withdrawals?
Turner Kelly Total
Capital balance, beginning of year 890,000 570,000 1,460,000
Net income for current year 85,000 65,000 150,000
Withdrawals for current year 40,000 25,000 65,000
Capital balance, beginning of year 890,000 570,000 1,460,000
Net income for current year 85,000 65,000 150,000
Withdrawals for current year 40,000 25,000 65,000
Partner return on equity = Partner net
income/Average partner equity
Turner’s ending equity = $890,000 + 85,000 – $40,000 = $935,000
Turner’s partner return on equity = $85,000/[($890,000 + $935,000)/2] = 9.3%
Kelly’s ending equity = $570,000 + 65,000 – 25,000 = $610,000
Kelly’s partner return on equity = $65,000/[($570,000 + $610,000)/2] = 11.0%
Turner’s ending equity = $890,000 + 85,000 – $40,000 = $935,000
Turner’s partner return on equity = $85,000/[($890,000 + $935,000)/2] = 9.3%
Kelly’s ending equity = $570,000 + 65,000 – 25,000 = $610,000
Kelly’s partner return on equity = $65,000/[($570,000 + $610,000)/2] = 11.0%
The year shown produced good returns for both
partners with Kelly’s return being somewhat higher.
Since the capital balances are fairly large
amounts, the partners may want to consider withdrawing larger amounts, reducing
the capital balances. If the same earnings stream continues, this would yield a
higher return on partner’s equity. Sufficient quick assets would need to be available
for the partnership to do this.
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: BB Industry
AICPA: FN Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
AICPA: BB Critical Thinking
AICPA: BB Industry
AICPA: FN Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
118. Cinema Products LP is organized as a
limited partnership that sells movie props. Information related to the capital
balances is given below. Compute the partnership return on equity.
Turner Kelly Total
Capital balance, beginning of year 890,000 570,000 1,460,000
Net income for current year 85,000 65,000 150,000
Withdrawals for current year 40,000 25,000 65,000
Capital balance, beginning of year 890,000 570,000 1,460,000
Net income for current year 85,000 65,000 150,000
Withdrawals for current year 40,000 25,000 65,000
Partnership return on equity = Partnership net
income/Average partnership equity
Partnership ending equity = $1,460,000 + 150,000 – $65,000 = $1,545,000
Partnership average equity = ($1,460,000 + $1,545,000)/2 = $1,502,500
Partnership return on equity = 150,000/$1,502,500 = 10.0%
Partnership ending equity = $1,460,000 + 150,000 – $65,000 = $1,545,000
Partnership average equity = ($1,460,000 + $1,545,000)/2 = $1,502,500
Partnership return on equity = 150,000/$1,502,500 = 10.0%
AACSB: Analytical Thinking
AICPA: BB Critical Thinking
AICPA: BB Industry
AICPA: FN Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
AICPA: BB Critical Thinking
AICPA: BB Industry
AICPA: FN Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
119. Caroline Meeks and Charlie Fox decide to
form a partnership on August 1. Meeks invests the following assets and
liabilities in the new partnership:
Market Value
Land $80,000
Building 250,000
Note payable 114,000
Land $80,000
Building 250,000
Note payable 114,000
The note payable is associated with the
building and the partnership will assume responsibility for the loan. Fox
invested $100,000 in cash and $95,000 in equipment in the new partnership.
Prepare the journal entries to record the two partners’ original investments in
the new partnership.
Aug. 1 Land 80,000
Building 250,000
Note Payable 114,000
C. Meeks, Capital 216,000
1 Cash 100,000
Equipment 95,000
C. Fox, Capital 195,000
Building 250,000
Note Payable 114,000
C. Meeks, Capital 216,000
1 Cash 100,000
Equipment 95,000
C. Fox, Capital 195,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
120. Montez and Flair formed a partnership.
Montez contributed $15,000 cash and accounts receivable worth $11,000. Flair
contributed cash of $5,000; inventory valued at $16,000; and supplies valued at
$2,000. Prepare the journal entries to record each partner’s investment in the
new partnership.
Cash 15,000
Accounts Receivable 11,000
Montez, Capital 26,000
Cash 5,000
Inventory 16,000
Supplies 2,000
Flair, Capital 23,000
Accounts Receivable 11,000
Montez, Capital 26,000
Cash 5,000
Inventory 16,000
Supplies 2,000
Flair, Capital 23,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
121. MacArthur, Strong, and Viet form a
partnership. MacArthur contributes $190,000 cash and Strong contributes
$200,000 in cash. Viet contributes equipment worth $215,000. Prepare the single
journal entry to record the formation of this partnership.
Cash ($190,000 + $200,000) 390,000
Equipment 215,000
MacArthur, Capital 190,000
Strong, Capital 200,000
Viet, Capital 215,000
Equipment 215,000
MacArthur, Capital 190,000
Strong, Capital 200,000
Viet, Capital 215,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
122. Ranger and Sol formed a partnership with
capital contributions of $150,000 and $180,000, respectively. Their partnership
agreement called for Ranger to receive a $60,000 annual salary allowance. They
also agreed to allow each partner a share of income equal to 10% of their
initial capital investments. The remaining income or loss is to be divided
equally. If the net income for the current year is $110,000, what are Ranger’s
and Sol’s respective shares?
Ranger Sol Total
Net income $110,000
Salary Allowance $60,000 (60,000)
Interest allowance
$150,000 × 0.10 15,000 (15,000)
$180,000 × 0.10 18,000 (18,000)
Remainder 17,000
Allocation of remainder 8,500 8,500 (17,000)
Total $83,500 $26,500 -0-
Net income $110,000
Salary Allowance $60,000 (60,000)
Interest allowance
$150,000 × 0.10 15,000 (15,000)
$180,000 × 0.10 18,000 (18,000)
Remainder 17,000
Allocation of remainder 8,500 8,500 (17,000)
Total $83,500 $26,500 -0-
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
123. Bannister invested $110,000 and Wilder
invested $99,500 in a new partnership. They agreed to an annual interest
allowance of 10% on the partners’ beginning-year capital balance, with the
balance of income or loss to be divided equally. Under this agreement, what are
the income or loss shares of the partners if the annual partnership income is
$202,000?
Bannister Wilder Total
Total net income $202,000
Allocated as interest
Bannister (10% on $110,000) 11,000 (11,000)
Wilder (10% on $99,500) 9,950 (9,950)
Balance of income 181,050
Allocated equally 90,525 90,525 (181,050)
Shares of the partners $101,525 $100,475 $0
Total net income $202,000
Allocated as interest
Bannister (10% on $110,000) 11,000 (11,000)
Wilder (10% on $99,500) 9,950 (9,950)
Balance of income 181,050
Allocated equally 90,525 90,525 (181,050)
Shares of the partners $101,525 $100,475 $0
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
124. Bannister invested $110,000 and Wilder
invested $99,000 in a new partnership. Their partnership agreement called for
Wilder to receive a $70,000 annual salary allowance. They also agreed to an
annual interest allowance of 5% on the partners’ beginning-year capital
balance, with the balance of income or loss to be divided equally. Under this
agreement, what are the income or loss shares of the partners if the annual
partnership income is $82,000?
Bannister Wilder Total
Total net income $82,000
Salary allowance $70,000 (70,000)
Allocated as interest
Bannister (5% on $110,000) 5,500 (5,500)
Wilder (5% on $99,000) 4,950 (4,950)
Balance of income 1,550
Allocated equally 775 775 (1,550)
Shares of the partners $6,275 $75,725 $0
Total net income $82,000
Salary allowance $70,000 (70,000)
Allocated as interest
Bannister (5% on $110,000) 5,500 (5,500)
Wilder (5% on $99,000) 4,950 (4,950)
Balance of income 1,550
Allocated equally 775 775 (1,550)
Shares of the partners $6,275 $75,725 $0
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
125. Bannister invested $110,000 and Wilder
invested $99,000 in a new partnership. Their partnership agreement called for
Wilder to receive a $70,000 annual salary allowance. Under this agreement, what
are the income or loss shares of the partners if the annual partnership income
is $90,000?
Bannister Wilder Total
Total net income $90,000
Salary allowance $70,000 (70,000)
Balance of income 20,000
Allocated equally 10,000 10,000 (20,000)
Shares of the partners $10,000 $80,000 $0
Total net income $90,000
Salary allowance $70,000 (70,000)
Balance of income 20,000
Allocated equally 10,000 10,000 (20,000)
Shares of the partners $10,000 $80,000 $0
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
126. Fallon and Springer formed a partnership
on January 1. Fallon contributed $90,000 cash and equipment with a market value
of $60,000. Springer’s investment consisted of: cash, $30,000; inventory,
$20,000; all at market values. Partnership net income for Year 1 and Year 2 was
$75,000 and $120,000, respectively.
1. Determine each partner’s share of the net income for each year, assuming each of the following independent situations:
1. Determine each partner’s share of the net income for each year, assuming each of the following independent situations:
(a) Income is divided based on the partners’
failure to sign an agreement.
(b) Income is divided based on a 2:1 ratio (Fallon: Springer).
(c) Income is divided based on the ratio of the partners’ original capital investments.
(d) Income is divided based on interest allowance of 12% on the original capital investments; salary allowance to Fallon of $30,000 and Springer of $25,000; and the remainder to be divided equally.
(b) Income is divided based on a 2:1 ratio (Fallon: Springer).
(c) Income is divided based on the ratio of the partners’ original capital investments.
(d) Income is divided based on interest allowance of 12% on the original capital investments; salary allowance to Fallon of $30,000 and Springer of $25,000; and the remainder to be divided equally.
2. Prepare the journal entry to record the
allocation of the Year 1 income under alternative (d) above.
Part 1: Calculation of partners’ capital
contributions:
Fallon Springer Total
Cash $90,000 $30,000 $120,000
Equipment 60,000 60,000
Inventory 20,000 20,000
Total contribution $150,000 $50,000 $200,000
Cash $90,000 $30,000 $120,000
Equipment 60,000 60,000
Inventory 20,000 20,000
Total contribution $150,000 $50,000 $200,000
Year 1 Year 2
Net income: $75,000 Net income: $120,000
Fallon Springer Fallon Springer
(a) Net income distributed on a 1:1 basis $37,500 $37,500 $60,000 $60,000
(b) Net income distributed on a 2:1 basis $50,000 $25,000 $80,000 $40,000
(c) Net income distributed based on ratio of original capital investments (75:25) $56,250 $18,750 $90,000 $30,000
Net income: $75,000 Net income: $120,000
Fallon Springer Fallon Springer
(a) Net income distributed on a 1:1 basis $37,500 $37,500 $60,000 $60,000
(b) Net income distributed on a 2:1 basis $50,000 $25,000 $80,000 $40,000
(c) Net income distributed based on ratio of original capital investments (75:25) $56,250 $18,750 $90,000 $30,000
(d) Year 1 Year 2
Fallon Springer Total Fallon Springer Total
Net income $75,000 $120,000
Salary $30,000 $25,000 (55,000) $30,000 $25,000 (55,000)
12% interest allowance 18,000 6,000 (24,000) 18,000 6,000 (24,000)
Balance of income (4,000) 41,000
Remainder allocated (2,000) (2,000) 4,000 20,500 20,500 (41,000)
Total $46,000 $29,000 $0 $68,500 $51,500 $0
Fallon Springer Total Fallon Springer Total
Net income $75,000 $120,000
Salary $30,000 $25,000 (55,000) $30,000 $25,000 (55,000)
12% interest allowance 18,000 6,000 (24,000) 18,000 6,000 (24,000)
Balance of income (4,000) 41,000
Remainder allocated (2,000) (2,000) 4,000 20,500 20,500 (41,000)
Total $46,000 $29,000 $0 $68,500 $51,500 $0
Part 2:
Dec. 31 Income summary 75,000
Fallon, Capital 46,000
Springer, Capital 29,000
Fallon, Capital 46,000
Springer, Capital 29,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
127. Lin and Coral invested $99,000 and
$126,000, respectively, in a partnership they began one year ago. Assuming the
partnership earned $120,000 during the current year; compute the share of the
net income each partner should receive under each of these independent
assumptions.
1. The partnership contract specifies salary
allowances of $45,000 to Lin and $60,000 to Coral, and any balance shared equally.
Lin Coral Allocated
Net Income
Salary allowance
Remainder
Allocation of remainder
Total
Net Income
Salary allowance
Remainder
Allocation of remainder
Total
2. The partnership contract specifies salary
allowances of $45,000 to Lin and $60,000 to Coral, interest allowance of 10% on
the partners’ beginning capital balance for the year.
Lin Coral Allocated
Net Income
Salary allowance
Interest allowance
Remainder
Allocation of remainder
Total
Net Income
Salary allowance
Interest allowance
Remainder
Allocation of remainder
Total
Part 1
Lin Coral Allocated
Net income $120,000
Salary allowance $45,000 $60,000 (105,000)
Remainder 15,000
Allocation of remainder 7,500 7,500 (15,000)
Total $52,500 $67,500 $0
Net income $120,000
Salary allowance $45,000 $60,000 (105,000)
Remainder 15,000
Allocation of remainder 7,500 7,500 (15,000)
Total $52,500 $67,500 $0
Part 2:
Lin Coral Allocated
Net income $120,000
Salary allowance $45,000 $60,000 (105,000)
Interest Allowance
$99,000 × 0.10 9,900 (9,900)
$126,000 × 0.10 12,600 (12,600)
Remainder $(7,500)
Allocation of remainder (3,750) (3,750) 7,500
Total $51,150 $68,850 $0
Net income $120,000
Salary allowance $45,000 $60,000 (105,000)
Interest Allowance
$99,000 × 0.10 9,900 (9,900)
$126,000 × 0.10 12,600 (12,600)
Remainder $(7,500)
Allocation of remainder (3,750) (3,750) 7,500
Total $51,150 $68,850 $0
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
128. Glade, Marker, and Walters are partners
with beginning-year capital balances of $100,000, $50,000, and $50,000,
respectively. Partnership net income for the year is $84,000. Make the
necessary journal entry to close Income Summary to the capital accounts if:
a. Partners agree to divide income based on
their beginning-year capital balances.
b. Partners agree to divide income based on the ratio of 5:3:2 (Glade:Marker:Walters), respectively.
c. Partnership agreement is silent as to division of income and less.
b. Partners agree to divide income based on the ratio of 5:3:2 (Glade:Marker:Walters), respectively.
c. Partnership agreement is silent as to division of income and less.
(a) Income Summary 84,000
Glade, Capital ($84,000 × ($100,000/$200,000)) 42,000
Marker, Capital ($84,000 × ($50,000/$200,000)) 21,000
Walters, Capital ($84,000 × ($50,000/$200,000)) 21,000
Glade, Capital ($84,000 × ($100,000/$200,000)) 42,000
Marker, Capital ($84,000 × ($50,000/$200,000)) 21,000
Walters, Capital ($84,000 × ($50,000/$200,000)) 21,000
(b) Income Summary 84,000
Glade, Capital ($84,000 × 5/10) 42,000
Marker, Capital ($84,000 × 3/10) 25,200
Walters, Capital ($84,000 × 2/10) 16,800
Glade, Capital ($84,000 × 5/10) 42,000
Marker, Capital ($84,000 × 3/10) 25,200
Walters, Capital ($84,000 × 2/10) 16,800
(c) Income Summary 84,000
Glade, Capital ($84,000 × 1/3) 28,000
Marker, Capital ($84,000 × 1/3) 28,000
Walters, Capital ($84,000 × 1/3) 28,000
Glade, Capital ($84,000 × 1/3) 28,000
Marker, Capital ($84,000 × 1/3) 28,000
Walters, Capital ($84,000 × 1/3) 28,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
129. Glade, Marker, and Walters are partners
with beginning-year capital balances of $250,000, $150,000, and $100,000,
respectively. Partnership net income for the year is $192,000. Make the
necessary journal entry to close Income Summary to the capital accounts if
partners agree to divide income based on their beginning-year capital balances.
(a) Income Summary 192,000
Glade, Capital ($192,000 × ($250,000/$500,000)) 96,000
Marker, Capital ($192,000 × ($150,000/$500,000)) 57,600
Walters, Capital ($192,000 × ($100,000/$500,000)) 38,400
Glade, Capital ($192,000 × ($250,000/$500,000)) 96,000
Marker, Capital ($192,000 × ($150,000/$500,000)) 57,600
Walters, Capital ($192,000 × ($100,000/$500,000)) 38,400
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
130. Jakobs, Penn, and Lundt are partners with
beginning-of-year capital balances of $400,000, $320,000, and $160,000,
respectively. The partners agreed to share income and loss as follows: Salary
of $30,000 to Jakobs, $50,000 to Penn, and $36,000 to Lundt. An interest
allowance of 8% on beginning-of-year capital balances. Any remaining balance is
to be divided equally. If partnership net income for the year is $190,000,
determine each partner’s share and make the appropriate journal entry to close
the Income Summary to the capital accounts.
Jakobs Penn Lundt Allocated
Income $190,000
Salary allowance $30,000 $50,000 $36,000 (116,000)
Interest at 8% 32,000 25,600 12,800 (70,400)
Remainder $3,600
Balance allocated 1,200 1,200 1,200 ($3,600)
Total $63,200 $76,800 $50,000 $0
Income $190,000
Salary allowance $30,000 $50,000 $36,000 (116,000)
Interest at 8% 32,000 25,600 12,800 (70,400)
Remainder $3,600
Balance allocated 1,200 1,200 1,200 ($3,600)
Total $63,200 $76,800 $50,000 $0
Income Summary 190,000
Jakobs, Capital 63,200
Penn, Capital 76,800
Lundt, Capital 50,000
Jakobs, Capital 63,200
Penn, Capital 76,800
Lundt, Capital 50,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
131. Darien and Hayden agree to accept Kevin
into their partnership. Kevin will contribute $22,000 in cash. Prepare the
journal entry to record this transaction.
Cash 22,000
Kevin, Capital 22,000
Kevin, Capital 22,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
132. Palmer withdraws from the FAP
Partnership. The remaining partners agree to buy out her share for her capital
balance of $65,000. Prepare the journal entry to record the withdrawal from the
partnership.
Palmer, Capital 65,000
Cash 65,000
Cash 65,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
133. Lemon and Parks are partners. On October
1, Lemon’s capital balance is $75,000, and Parks’ capital balance is $125,000.
With the partnership’s approval, Parks sells ½ of his partnership interest to
Tambling for $70,000. Prepare the journal entry to record this transaction in
the partnership records.
Parks, Capital 62,500
Tambling, Capital 62,500
Tambling, Capital 62,500
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
134. Leto and Duncan allow Gunner to purchase
a 25% interest in their partnership for $30,000 cash. Gunner has exceptional
talents that will enhance the partnership. Leto’s and Duncan’s capital account
balances are $55,000 each. The partners have agreed to share income or loss
equally. Prepare the general journal entry to record the admission of Lepley to
the partnership.
Cash 30,000
Leto, Capital 2,500
Duncan, Capital 2,500
Gunner, Capital 35,000
Leto, Capital 2,500
Duncan, Capital 2,500
Gunner, Capital 35,000
Existing partnership capital = $110,000;
$110,000 + Gunner investment of $30,000 = $140,000; $140,000 * 25% = $35,000.
Gunner receives a bonus of $5,000 split evenly between Leto and Duncan.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
135. Conklin plans to leave the CAP
Partnership. The recorded value of his capital account is $48,000. The
remaining partners Arthurs and Preston agree to pay Conklin $40,000 cash and
Conklin accepts. The partners share income and loss equally. Prepare the
general journal entry to record the withdrawal from the partnership.
Conklin, Capital 48,000
Cash 40,000
Arthurs, Capital 4,000
Preston, Capital 4,000
Cash 40,000
Arthurs, Capital 4,000
Preston, Capital 4,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
136. Conklin plans to leave the CAP
Partnership. The recorded balance in her capital account is $48,000. The
remaining partners, Arthurs and Preston, agree to pay Conklin $58,000 cash and
Conklin accepts. The partners share income and loss equally. Prepare the journal
entry to record the transaction.
Conklin, Capital 48,000
Arthurs, Capital 5,000
Preston, Capital 5,000
Cash 58,000
Arthurs, Capital 5,000
Preston, Capital 5,000
Cash 58,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
137. Kramer and Jones allow Sanders to
purchase a 25% interest in their partnership for $50,000 cash. Kramer and Jones
both have capital balances of $55,000 each, and have agreed to share income and
loss equally. Prepare the journal entry to record the admission of Sanders to
the partnership.
Cash 50,000
Kramer, Capital 5,000
Jones, Capital 5,000
Sanders, Capital 40,000
Kramer, Capital 5,000
Jones, Capital 5,000
Sanders, Capital 40,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
138. The Redtail Partnership agrees to
dissolve. The remaining cash balance after liquidating partnership assets and
liabilities is $70,000. The final capital account balances are: Paulson,
$35,000; Gray, $25,000; and Chang, $10,000. Prepare the journal entry to
distribute the remaining cash to the partners.
Paulson, Capital 35,000
Gray, Capital 25,000
Chang, Capital 10,000
Cash 70,000
Gray, Capital 25,000
Chang, Capital 10,000
Cash 70,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
139. The Redtail Partnership agrees to
dissolve. The cash balance after selling all assets and paying all liabilities
is $56,000. The final capital account balances are: Paulson, $33,000; Gray,
$27,000; and Chang, ($4,000). Chang agrees to pay $4,000 cash from personal
funds to settle his deficiency. Prepare the journal entries to record the
transactions required to dissolve this partnership.
1. Cash 4,000
Chang, Capital 4,000
2 Paulson, Capital 33,000
Gray, Capital 27,000
Cash 60,000
Chang, Capital 4,000
2 Paulson, Capital 33,000
Gray, Capital 27,000
Cash 60,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
140. The Redtail Partnership agrees to
dissolve. The cash balance after selling all assets and paying all liabilities
is $60,000. The final capital account balances are: Paulson, $35,000; Gray,
$29,000; and Chang, ($4,000). Chang is unable to pay the capital deficiency.
Prepare the journal entries to record the transactions required to dissolve
this partnership.
1. Paulson, Capital 2,000
Gray, Capital 2,000
Chang, Capital 4,000
2. Paulson, Capital 33,000
Gray, Capital 27,000
Cash 60,000
Gray, Capital 2,000
Chang, Capital 4,000
2. Paulson, Capital 33,000
Gray, Capital 27,000
Cash 60,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
141. Sharon and Nancy formed a partnership by
making capital contributions of $130,000 and $195,000 respectively. They
predict annual partnership income of $230,000 and are considering the following
alternative plans of sharing income and loss: (a) in the ratio of their initial
capital investments; or (b) salary allowances of $40,000 to Sharon and $35,000
to Nancy; interest allowances of 12% on their initial capital investments; and
the balance shared equally. Assuming that both partners put about the same
amount of time into the business, which method of allocating income would be
best?
Plan Calculation Sharon Nancy Total
(a) $230,000 × ($130,000/$325,000) $92,000
$230,000 × ($195,000/$325,000) $138,000 $230,000
Total Allocated $92,000 $138,000 $230,000
(b) Net income $230,000
Salary allowances $40,000 $35,000 $(75,000)
Balance of income $155,000
Interest allowances
12% × $130,000 $15,600
12% × $195,000 $23,400
Total interest $(39,000)
Balance of income $116,000
Balance allocated equally $58,000 $58,000 $(116,000)
Balance of income $ –
Shares of partners $113,600 $116,400
(a) $230,000 × ($130,000/$325,000) $92,000
$230,000 × ($195,000/$325,000) $138,000 $230,000
Total Allocated $92,000 $138,000 $230,000
(b) Net income $230,000
Salary allowances $40,000 $35,000 $(75,000)
Balance of income $155,000
Interest allowances
12% × $130,000 $15,600
12% × $195,000 $23,400
Total interest $(39,000)
Balance of income $116,000
Balance allocated equally $58,000 $58,000 $(116,000)
Balance of income $ –
Shares of partners $113,600 $116,400
Plan (b) would be the better distribution of
income because it takes into account all factors and still allows a reasonable
return on the initial investment.
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
142. Sharon and Nancy formed a partnership by
making capital contributions of $130,000 and $195,000 respectively. The annual
partnership income of $230,000 is to be allocated assuming a salary allowance
of $40,000 to Sharon and $35,000 to Nancy; interest allowances of 12% on their
initial capital investments; and the balance shared equally. Prepare the
entries to record the initial capital investments, the allocation of net
income, and close the partner’s withdrawal accounts assuming that Sharon
withdrew $50,000 and Nancy withdrew $45,000.
(a) Cash 325,000
Sharon, Capital 130,000
Nancy, Capital 195,000
Sharon, Capital 130,000
Nancy, Capital 195,000
(b) Income Summary 230,000
Sharon, Capital 113,600
Nancy, Capital 116,400
Sharon, Capital 113,600
Nancy, Capital 116,400
(c) Sharon, Capital 50,000
Nancy 45,000
Sharon, Withdrawals 50,000
Nancy, Withdrawals 45,000
Nancy 45,000
Sharon, Withdrawals 50,000
Nancy, Withdrawals 45,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P1 Prepare entries for partnership formation.
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P1 Prepare entries for partnership formation.
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
Topic: Organizing a Partnership
143. Kramer and Feldman Company is organized
as a partnership. At the prior year-end, Kramer’s equity balance was $352,000
and Feldman’s was $256,000. For the current year, partnership net income is
$137,000 ($77,000 allocated to Kramer and $60,000 allocated to Feldman);
withdrawals are $87,000 ($45,000 for Kramer and $42,000 for Feldman). Compute
the total partnership return on equity and the individual partner return on
equity ratios.
Total partnership return on equity = Net
Income/Average equity
= $137,000/[($608,000 + $658,000)/2]
= $137,000/$633,000 = 21.6%
= $137,000/[($608,000 + $658,000)/2]
= $137,000/$633,000 = 21.6%
Kramer partner return on equity = Partner net
income/Average partner equity
= $77,000/[($352,000 + $384,000)/2]
= $77,000/$368,000 = 20.9%
= $77,000/[($352,000 + $384,000)/2]
= $77,000/$368,000 = 20.9%
Feldman partner return on equity = Partner net
income/Average partner equity
= $60,000/[($256,000 + $274,000)/2]
= $60,000/$265,000 = 22.6%
= $60,000/[($256,000 + $274,000)/2]
= $60,000/$265,000 = 22.6%
AACSB: Analytical Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
144. Masco, Short, and Henderson who are
partners in the MSH Company share income and loss in a 2:2:1 ratio. They plan
to liquidate their partnership. At liquidation, their balance sheet appears as
follows. Prepare journal entries for (a) the sale of land and equipment sold as
a package for $500,000, (b) the allocation of the gain or loss, (c) the payment
of the liabilities, and (d) the distribution of cash to the individual
partners.
MSH Company
Balance Sheet
January 31
Assets Liabilities and Equity
Cash $200,000 Accounts Payable $221,500
Equipment 200,000 Masco, Capital 210,000
Land 350,000 Short, Capital 178,000
Henderson, Capital 140,500
Total assets $750,000 Total liabilities and equity $750,000
Balance Sheet
January 31
Assets Liabilities and Equity
Cash $200,000 Accounts Payable $221,500
Equipment 200,000 Masco, Capital 210,000
Land 350,000 Short, Capital 178,000
Henderson, Capital 140,500
Total assets $750,000 Total liabilities and equity $750,000
(a) Cash 500,000
Loss from liquidation 50,000
Equipment 200,000
Land 350,000
(b) Masco, Capital (50,000 * 2/5) 20,000
Short, Capital (50,000 * 2/5) 20,000
Henderson, Capital (50,000 * 1/5) 10,000
Loss from liquidation 50,000
(c) Accounts Payable 221,500
Cash 221,500
(d) Masco, Capital (210,000 – 20,000) 190,000
Short, Capital (178,000 – 20,000) 158,000
Henderson, Capital (140,500 – 10,000) 130,500
Cash (200,000 + 500,000 – 221,500) 478,500
Loss from liquidation 50,000
Equipment 200,000
Land 350,000
(b) Masco, Capital (50,000 * 2/5) 20,000
Short, Capital (50,000 * 2/5) 20,000
Henderson, Capital (50,000 * 1/5) 10,000
Loss from liquidation 50,000
(c) Accounts Payable 221,500
Cash 221,500
(d) Masco, Capital (210,000 – 20,000) 190,000
Short, Capital (178,000 – 20,000) 158,000
Henderson, Capital (140,500 – 10,000) 130,500
Cash (200,000 + 500,000 – 221,500) 478,500
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
145. Tower, Knight, and Spears are partners
who share income and loss in a 3:2:2 ratio. The partnership’s capital balances
are as follows: Tower, $332,000; Knight, $124,000; and Spears, $214,000. Spears
decides to withdraw from the partnership, and the partners agree not to have
the assets revalued upon Spears’ retirement. Prepare journal entries to record
Spears’ withdrawal from the partnership under each of the following separate
assumptions: Spears (a) sells his interest to Conner for $200,000 after Tower
and Knight approve the entry of Conner as a partner; (b) is paid $214,000 in
partnership cash for his equity; (c) is paid $205,000 in partnership cash for
his equity; (d) is paid $220,000 in partnership cash for his equity.
(a) Spears, Capital 214,000
Conner, Capital 214,000
Conner, Capital 214,000
(b) Spears, Capital 214,000
Cash 214,000
Cash 214,000
(c) Spears, Capital 214,000
Tower, Capital (9,000 * 3/5) 5,400
Knight, Capital (9,000 * 2/5) 3,600
Cash 205,000
Tower, Capital (9,000 * 3/5) 5,400
Knight, Capital (9,000 * 2/5) 3,600
Cash 205,000
(d) Spears, Capital 214,000
Tower, Capital (6,000 * 3/5) 3,600
Knight, Capital (6,000 * 2/5) 2,400
Cash 220,000
Tower, Capital (6,000 * 3/5) 3,600
Knight, Capital (6,000 * 2/5) 2,400
Cash 220,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
146. Tower, Knight, and Spears are partners
who share income and loss in a 4:2:2 ratio. The partnership’s capital balances
are as follows: Tower, $292,000; Knight, $114,000; and Spears, $194,000. Damsel
is admitted to the partnership on March 1 with a 25% equity. Prepare the
journal entries to record Damsel’s entry into the partnership under each of the
following separate assumptions: Damsel invests (a) $200,000; (b) $180,000; and
(c) $240,000.
(a) Cash 200,000
Damsel, Capital (800,000 * .25) 200,000
Damsel, Capital (800,000 * .25) 200,000
(b) Cash 180,000
Tower, Capital (15,000 * 4/8) 7,500
Knight, Capital (15,000 * 2/8) 3,750
Spears, Capital (15,000 * 2/8) 3,750
Damsel, Capital (780,000 * .25) 195,000
Tower, Capital (15,000 * 4/8) 7,500
Knight, Capital (15,000 * 2/8) 3,750
Spears, Capital (15,000 * 2/8) 3,750
Damsel, Capital (780,000 * .25) 195,000
(c) Cash 240,000
Tower, Capital (30,000 * 4/8) 15,000
Knight, Capital (30,000 * 2/8) 7,500
Spears, Capital (30,000 * 2/8) 7,500
Damsel, Capital (840,000 * .25) 210,000
Tower, Capital (30,000 * 4/8) 15,000
Knight, Capital (30,000 * 2/8) 7,500
Spears, Capital (30,000 * 2/8) 7,500
Damsel, Capital (840,000 * .25) 210,000
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
147. On May 1, Gosworth and Jordan formed a
partnership. Gosworth contributed cash of $100,000 and equipment valued at
$142,000. Jordan contributed land valued at $130,000 and a building valued at
$250,000. The partnership also assumed responsibility for Jordan’s $120,000
long-term note payable associated with the land and building. The partners
agreed to share income as follows: Gosworth is to receive a salary allowance of
$38,000, both are to receive an annual interest allowance of 8% of their
beginning-year capital investments, and any remaining income or loss is to be
shared equally. During the year, Gosworth withdrew $40,000 and Jordan withdrew
$42,000 cash. After the adjusting and closing entries are made to the revenue
and expense accounts at the end of the year, the Income Summary account had a
credit balance of $140,000. Prepare the journal entries to record (a) the
partners’ initial capital investments, (b) their cash withdrawals, and (c)
closing of both the Withdrawals and Income Summary accounts.
(a) Cash 100,000
Equipment 142,000
Land 130,000
Building 250,000
Long-term note payable 120,000
Gosworth, Capital 242,000
Jordan, Capital 260,000
Equipment 142,000
Land 130,000
Building 250,000
Long-term note payable 120,000
Gosworth, Capital 242,000
Jordan, Capital 260,000
(b) Gosworth, Withdrawals 40,000
Jordan, Withdrawals 42,000
Cash 82,000
Jordan, Withdrawals 42,000
Cash 82,000
(c) Gosworth, Capital 40,000
Jordan, Capital 42,000
Gosworth, Withdrawals 40,000
Jordan, Withdrawals 42,000
Jordan, Capital 42,000
Gosworth, Withdrawals 40,000
Jordan, Withdrawals 42,000
Income Summary 140,000
Gosworth, Capital 88,280
Jordan, Capital 51,720
Gosworth, Capital 88,280
Jordan, Capital 51,720
Share to Gosworth Share to Jordan Income
Allocated
Total net income $140,000
Salary Allowance $38,000 (38,000)
Balance of income $102,000
Allocated as interest
Gosworth (8% on $242,000) 19,360
Jordan (8% on $260,000) 20,800 (40,160)
Balance of income $61,840
Allocated equally 30,920 30,920 (61,840)
Shares of the partners $88,280 $51,720 $0
Total net income $140,000
Salary Allowance $38,000 (38,000)
Balance of income $102,000
Allocated as interest
Gosworth (8% on $242,000) 19,360
Jordan (8% on $260,000) 20,800 (40,160)
Balance of income $61,840
Allocated equally 30,920 30,920 (61,840)
Shares of the partners $88,280 $51,720 $0
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P1 Prepare entries for partnership formation.
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-P1 Prepare entries for partnership formation.
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
Topic: Organizing a Partnership
148. Mesner’s and Sanchez’s company is
organized as a partnership. At the prior year-end, Mesner’s equity balance was
$258,000 and Sanchez’s was $212,000. For the current year, partnership net
income is $125,000 ($75,000 allocated to Mesner and $50,000 allocated to
Sanchez); withdrawals are $77,000 ($40,000 for Mesner and $37,000 for Sanchez).
Compute the total partnership return on equity and the individual partner
return on equity ratios.
Total partnership return on equity = Net
Income/Average equity
= $125,000/[($470,000 + $518,000)/2]
= $125,000/$494,000 = 25.3%
= $125,000/[($470,000 + $518,000)/2]
= $125,000/$494,000 = 25.3%
Mesner’s partner return on equity = Partner
net income/Average partner equity
= $75,000/[($258,000 + $293,000)/2]
= $75,000/$275,500 = 27.2%
= $75,000/[($258,000 + $293,000)/2]
= $75,000/$275,500 = 27.2%
Sanchez’s partner return on equity = Partner
net income/Average partner equity
= $50,000/[($212,000 + $225,000)/2]
= $50,000/$218,500 = 22.9%
= $50,000/[($212,000 + $225,000)/2]
= $50,000/$218,500 = 22.9%
AACSB: Analytical Thinking
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
AICPA: BB Resource Management
AICPA: FN Risk Analysis
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
Topic: Partner Return on Equity
Fill in the Blank Questions
149. The life of a partnership is ____________________
in duration.
limited
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
150. A ________________ is an unincorporated
association of two or more people to pursue a business for profit as co-owners.
partnership
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
151. __________________ means that partners
can commit or bind the partnership to any contract within the scope of the
partnership business.
Mutual agency
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
152. __________________ implies that each
partner in a partnership can be called on to personally pay a partnership’s
debts.
Unlimited liability
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
153. A partnership that has at least two classes
of partners, general and limited, allows the limited partners to have no
personal liability beyond the amounts they invest in the partnership, and the
limited partners have no active role except as specified in the partnership
agreement is a ___________________ partnership.
limited
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
154. A partnership designed to protect
innocent partners from malpractice or negligence claims resulting from the acts
of other partners is a ________________________ partnership.
limited liability
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
155. A relatively new form of business
organization that protects partners with limited liability, allows limited
partners to assume an active management role, and is taxed as a partnership is
a ______________________________.
limited liability company (or LLC)
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
156. Partners in a partnership are not taxed
on their withdrawals, but rather on _____________________________.
share of partnership income
AACSB: Communication
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
AICPA: BB Industry
AICPA: BB Legal
AICPA: FN Decision Making
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-C1 Identify characteristics of partnerships and similar organizations.
Topic: Partnership Form of Organization
157. Partner net income divided by average
partner equity equals ______________________.
Partner return on equity
AACSB: Communication
AICPA: BB Industry
AICPA: FN Risk Analysis
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
AICPA: BB Industry
AICPA: FN Risk Analysis
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-A1 Compute partner return on equity and use it to evaluate partnership performance.
158. When a partner invests in a partnership,
his/her capital account is __________ for the invested amount.
credited
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P1 Prepare entries for partnership formation.
Topic: Organizing a Partnership
159. During the closing process, partner’s
capital accounts are _______________ for their share of net income and
_________________ for their share of net loss.
credited; debited
answers must appear in this order
answers must appear in this order
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
160. During the closing process, each
partner’s withdrawals account is closed to _________________________.
that partner’s capital account
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
161. If partners agree on how to share income,
but say nothing about losses, then losses are shared ___________________.
in the same manner as income
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P2 Allocate and record income and loss among partners.
Topic: Dividing Income or Loss
162. A partner can be admitted into a
partnership by _________________________ or by
__________________________________.
purchasing an interest from a current partner;
investing cash or other net assets into the partnership
answers can appear in any order
answers can appear in any order
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
163. If a partner withdraws from a partnership
and the recorded value of his or her equity is overstated, then a bonus goes to
_________________________; if the recorded value of the withdrawing partner’s
equity is understated, then a bonus goes to ____________________.
the remaining partners; the withdrawing
partner
answers must appear in this order
answers must appear in this order
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 12-P3 Account for the admission and withdrawal of partners.
Topic: Admission and Withdrawal of Partners
164. At least one partner having a debit
balance in his/her capital account at the point of the final distribution of
cash is known as a _________________________.
capital deficiency
AACSB: Analytical Thinking
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
AICPA: BB Industry
AICPA: FN Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 12-P4 Prepare entries for partnership liquidation.
Topic: Liquidation of a Partnership
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