Answer & Question : 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?

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

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.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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.

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

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

Answer & Question

Tuesday, 23 October 2018

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