The following information is available on TGR Enterprises, a partnership, for the most recent fiscal year:

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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)

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

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