Answer & Question : 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

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

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

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

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

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

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

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

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.
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

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

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

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

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

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

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

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

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

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

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

Mace’s Capital Balance = $135,000 + $2,000 = $137,000
Bowen’s Capital Balance = $120,000 + $2,000 = $122,000

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.
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

Peters’s Capital Balance = $140,000 – $6,200 = $133,800
Chong’s Capital Balance = $130,000 – $6,200 = $123,800

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

Equity for Aaron = $368,000 * 0.30 (or 30%) = $110,400

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

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

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

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

Partner Return on Equity = Partners’ Income/Average Partnership Equity
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

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

Partner Return on Equity = Partners’ Income/Average Partnership Equity
Partner Return on Equity = $125,000/[($370,000 + $395,000)/2] = 0.327 = 32.7%

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

Partner Return on Equity = Partners’ Income/Average Partnership Equity
Partner Return on Equity = $175,000/[($260,000 + $365,000)/2] = 0.56 = 56.0%

Answer & Question

Tuesday 23 October 2018

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