Deck 14: Partnership Accounting and Reporting

Question 1

Legal guidelines for partnership organization and operation are found in

A) The Uniform Partnership Act.
B) The Partnership and Agency Code.
C) The Internal Revenue Code.
D) The Articles of Partnership Law.

Answer 1

The Uniform Partnership Act.

Question 2

The two major types of partnerships are

A) Limited liability company or limited liability partnership.
B) General or master limited partnership.
C) General or limited partnership.
D) Taxable or nontaxable partnership.

Answer 2

General or limited partnership.

Question 3

Which one of the following is not a characteristic of a general partnership?

A) A partner has the right to participate in management but is not a co-owner of partnership property.
B) A partnership is an entity distinct from the individual partners.
C) A partner may legally enter a contract that also binds the other partners.
D) Partnership income is separately taxed.

Answer 3

Partnership income is separately taxed.

Question 4

A general partnership is considered a separate accounting entity for:

A) tax and reporting purposes.
B) tax purposes but not reporting purposes.
C) reporting purposes but not tax purposes.
D) neither tax or reporting purposes.

Question 5

Most professional organizations, such as CPA firms, organize as:

A) Limited liability corporations
B) Professional corporations
C) Publicly traded partnerships
D) Limited liability partnerships

Question 6

In a limited partnership, the limited partners:

A) Cannot share in partnership profits.
B) Only receive a fixed periodic payment in return for their investment.
C) Have no right to participate in management.
D) Have no liability for partnership obligations.

Question 7

Which characteristic does not apply to a limited liability company?

A) The company is governed by articles of organization.
B) Owners cannot include corporations.
C) Double taxation of income and dividends is avoided.
D) Professional managers may make day to day decisions.

Question 8

Absent a separate agreement, the Revised Uniform Partnership Act provides for all of the following except:

A) No person can become a member of the partnership without the consent of all partners.
B) Disagreements arising as to ordinary matters connected with partnership business may be decided by a majority of the partners.
C) Partners have the right to receive reasonable compensation for services performed for partnership operations.
D) A partner who makes a payment beyond the amount of capital which he/she agreed to contribute shall be paid interest from the date of payment.

Question 9

Unless the partnership agreement has a different specific arrangement, partnership income is allocated between partners:

A) In proportion to their initial capital investment
B) Equally
C) In proportion to their current capital balance
D) On the basis of their involvement with partnership management

Question 10

If a CPA firm is organized as an LLP and an individual partner is involved in a negligent audit, another partner in the same CPA firm is personally liable:

A) Always.
B) If the partner operates out of the same office.
C) If the partner was involved in the audit in a supervisory role.
D) Never.

Question 11

Which statement is false concerning attributes of limited partnerships?

A) There is at least one general partner.
B) A limited partner's liability for partnership debts is limited to their investment in the partnership.
C) Limited partners have no right to a specified share of partnership income or loss.
D) Only the general partner(s) have the right to participate in managing the partnership.

Question 12

In a limited partnership, limited liability means a limited partner's liability for partnership debts is

A) zero; limited partners are not liable for any partnership debts.
B) zero for debts originating from the actions of general partners.
C) limited for partnership business debts but not for federal claims.
D) limited to their investment in the partnership.

Question 13

The distinguishing feature of a master limited partnership (MLP) is that:

A) Its income must come mostly from tech-related services.
B) Partnership income is not taxed separately.
C) Partnership income is defined as the amount of cash distributed to partners.
D) Partnership shares trade on markets.

Question 14

A salary paid to a partner is reported as:

A) A reduction in his or her capital account
B) A charge to dividends, a temporary account closed to partnership retained income
C) An expense, reducing partnership income
D) A deferred outflow, amortized to expense over time

Question 15

Which of the following is false regarding the measurement of partnership income?

A) Partnerships must use the cash basis of accounting rather than the accrual basis.
B) Salaries to partners are treated as distributions of partnership income.
C) Interest allocated to partners is not deducted as an expense in measuring partnership income.
D) Partnerships do not report income tax expense.

Question 16

A corporation has a financial relationship with a limited partnership. It is most likely to include the accounts of the partnership in its financial statements (i.e., consolidate the partnership) if the corporation:

A) Owns the majority of partnership shares.
B) Is the general partner.
C) Has the largest capital balance.
D) Is a limited partner.

Question 17

A limited partner in a partnership may consolidate the partnership in its financial statements

A) Never.
B) If the partnership does not qualify as a variable interest entity.
C) If the limited partner has substantial kick-out rights.
D) If the limited partner has contributed a substantial amount of the partnership's resources.

Question 18

Use the following information to answer Questions bellow
Patel and Rao decide to form a partnership. Patel contributes $300,000 in cash. Rao contributes buildings and equipment with a fair market value of $500,000, subject to a mortgage of $150,000, which the partnership assumes.

-If each partner's capital account is initially set equal to net assets invested at fair market value, the entry to record the partnership formation includes the following:

A) A credit to Patel's capital account for $150,000.
B) A credit to Patel's capital account for $325,000.
C) A credit to Rao's capital account for $500,000.
D) A credit to Rao's capital account for $350,000.

Question 19

Use the following information to answer Questions bellow
Patel and Rao decide to form a partnership. Patel contributes $300,000 in cash. Rao contributes buildings and equipment with a fair market value of $500,000, subject to a mortgage of $150,000, which the partnership assumes.

-Assume the partners specify an agreed-upon percentage in the initial partner capital, as follows: 40% to Patel, and 60% to Rao. If the bonus approach to partnership formation is used, Rao's initial capital balance will be:

A) $350,000
B) $390,000
C) $325,000
D) $480,000

Question 20

Use the following information to answer Questions bellow
Patel and Rao decide to form a partnership. Patel contributes $300,000 in cash. Rao contributes buildings and equipment with a fair market value of $500,000, subject to a mortgage of $150,000, which the partnership assumes.

-Assume the partners specify an agreed-upon percentage in the initial partner capital, as follows: 40% to Patel, and 60% to Rao. If the goodwill approach to partnership formation is used, the initial entry to record the formation of the partnership will recognize goodwill of:

A) $400,000
B) $250,000
C) $100,000
D) $150,000

Question 21

Use the following information to answer Questions bellow
Patel and Rao decide to form a partnership. Patel contributes $300,000 in cash. Rao contributes buildings and equipment with a fair market value of $500,000, subject to a mortgage of $150,000, which the partnership assumes.

-Assume the partners specify an agreed-upon percentage in the initial partner capital, as follows: 40% to Patel, and 60% to Rao. If the goodwill approach to partnership formation is used, Rao's initial capital balance is:

A) $410,000
B) $350,000
C) $400,000
D) $450,000

Question 22

Use the following information to answer Questions bellow
Patel and Rao decide to form a partnership. Patel contributes $300,000 in cash. Rao contributes buildings and equipment with a fair market value of $500,000, subject to a mortgage of $150,000, which the partnership assumes.

-Assume the partners specify an agreed-upon percentage in the initial partner capital, as follows: 60% to Patel, and 40% to Rao. If the goodwill approach to partnership formation is used, the initial entry to record the formation of the partnership will recognize goodwill of:

A) $400,000
B) $150,000
C) $225,000
D) $375,000

Question 23

Use the following information to answer Questions bellow
Patel and Rao decide to form a partnership. Patel contributes $300,000 in cash. Rao contributes buildings and equipment with a fair market value of $500,000, subject to a mortgage of $150,000, which the partnership assumes.

-Assume the partners specify an agreed-upon percentage in the initial partner capital, as follows: 60% to Patel, and 40% to Rao. If the goodwill approach to partnership formation is used, Rao's initial capital balance is:

A) $425,000
B) $375,000
C) $525,000
D) $350,000

Question 24

A partnership is formed with four partners. Each partner invests net assets with a different fair value, but they are each given a 25% capital percentage. Which of the following statements is true?

A) Using the bonus method, the partners will have different initial capital balances.
B) Total capital balances will be the same whether the bonus or goodwill method is used.
C) Because the investments are unequal, it is not possible to set each partner's capital balance equal to the amount invested.
D) The capital balances will be equal regardless of whether the bonus or goodwill method is used.

Question 25

A partnership's income-sharing ratio applies to:

A) Partnership income after salaries and interest are deducted
B) Partnership income before salaries are deducted but after interest is deducted
C) Partnership income after salaries are deducted but before interest is deducted
D) Partnership income before both salaries and interest are deducted

Question 26

The interest component of partnership income allocation is usually based on a percentage of:

A) Salary
B) Weighted average invested capital
C) Partnership income
D) Partnership income before deducting salaries and interest

Question 27

Xun, Yue and Zhuo have interests in XYZ Partnership. Partnership income for the year is $400,000. The partnership agreement specifies that Xun is to receive an annual salary of $200,000, Yue is to receive an annual salary of $50,000, and Zhuo is to receive an annual salary of $120,000. Any remaining income or loss is to be divided between the three partners in a 2:1:1 ratio. Salaries are to be fully implemented. Partnership income allocated to Zhuo is:

A) $112,500
B) $127,500
C) $120,000
D) $126,000

Question 28

Xun, Yue and Zhuo have interests in XYZ Partnership. Partnership income for the year is $350,000. The partnership agreement specifies that Xun is to receive an annual salary of $200,000, Yue is to receive an annual salary of $50,000, and Zhuo is to receive an annual salary of $120,000. Any remaining income or loss is to be divided between the three partners in a 2:1:1 ratio. Salaries are to be fully implemented. Partnership income allocated to Yue is:

A) $40,000
B) $55,000
C) $50,000
D) $45,000

Question 29

Xun, Yue and Zhuo have interests in XYZ Partnership. Partnership income for the year is $296,000. The partnership agreement specifies that Xun is to receive an annual salary of $200,000, Yue is to receive an annual salary of $50,000, and Zhuo is to receive an annual salary of $120,000. Any remaining income or loss is to be divided between the three partners in a 2:1:1 ratio. Salaries are to be proportionately implemented. Partnership income allocated to Xun is:

A) $172,000
B) $163,000
C) $160,000
D) $200,000

Question 30

Use the following information to answer Questions bellow:
Jing, Kang and Liang have interests in the JKL Partnership. Partnership income for the year is $300,000. The partnership agreement specifies that partnership income is to be allocated as follows: salaries of $80,000 to Jing, $50,000 to Kang, and $50,000 to Liang; a bonus of 20% of partnership income, after deducting salaries and bonus, to Kang, and the remainder allocated between the three partners in a 3:1:1 ratio.

-Kang's bonus for the year is:

A) $34,000
B) $20,000
C) $24,000
D) $60,000

Question 31

Use the following information to answer Questions bellow:
Jing, Kang and Liang have interests in the JKL Partnership. Partnership income for the year is $300,000. The partnership agreement specifies that partnership income is to be allocated as follows: salaries of $80,000 to Jing, $50,000 to Kang, and $50,000 to Liang; a bonus of 20% of partnership income, after deducting salaries and bonus, to Kang, and the remainder allocated between the three partners in a 3:1:1 ratio.

-The total allocation to Liang is:

A) $70,000
B) $50,000
C) $74,000
D) $80,000

Question 32

Use the following information to answer Questions bellow:
Anh, Byun and Chea have interests in the ABC Partnership. Partnership income for the year is $225,000. The partnership agreement specifies that partnership income is to be allocated as follows: salaries of $30,000 to Anh, $40,000 to Byun, and $50,000 to Chea; a bonus of 50% of partnership income, after deducting salaries and bonus, to Byun, and the remainder allocated between the three partners in a 5:1:1 ratio.

-Byun's bonus is:

A) $35,000
B) $45,000
C) $55,000
D) $65,000

Question 33

Use the following information to answer Questions bellow:
Anh, Byun and Chea have interests in the ABC Partnership. Partnership income for the year is $225,000. The partnership agreement specifies that partnership income is to be allocated as follows: salaries of $30,000 to Anh, $40,000 to Byun, and $50,000 to Chea; a bonus of 50% of partnership income, after deducting salaries and bonus, to Byun, and the remainder allocated between the three partners in a 5:1:1 ratio.

-The total income allocation to Anh is:

A) $75,000
B) $80,000
C) $85,000
D) $90,000

Question 34

A partnership agreement specifies that each partner is to receive 20 percent interest on their weighted average capital balance for the year. Suppose a partner's capital account starts the year with a balance of $100,000. On April 1, $20,000 is withdrawn. On July 1, $5,000 is withdrawn. On September 1, $45,000 is invested. How much partnership income for the year will be allocated to the partner for interest on capital?

A) $97,500
B) $21,350
C) $18,250
D) $19,500

Question 35

A partnership agreement specifies that each partner is to receive 25 percent interest on their weighted average capital balance for the year. Suppose a partner's capital account starts the year with a balance of $120,000. On May 1, $20,000 is withdrawn. On August 1, $50,000 is invested. On December 1, $18,000 is withdrawn. How much partnership income for the year will be allocated to the partner for interest on capital?

A) $30,975
B) $32,450
C) $30,600
D) $31,500

Question 36

Use the following information to answer Question bellow:
Partners Mann and Nie receive a yearly salary of $100,000 and $80,000, respectively. Partnership income for the year, before any distributions to partners, is $250,000. Assume full implementation.

-Mann and Nie each receive a bonus of 20% of partnership income after salaries and both bonuses. What is Mann's bonus?

A) $10,000
B) $11,667
C) $12,333
D) $14,000

Question 37

Use the following information to answer Question bellow:
Partners Mann and Nie receive a yearly salary of $100,000 and $80,000, respectively. Partnership income for the year, before any distributions to partners, is $250,000. Assume full implementation.

-Mann receives a bonus of 40% of partnership income after salaries and both bonuses, and Nie receives a bonus of 20% of partnership income after salaries and both bonuses. What is Nie's bonus?

A) $10,350
B) $11,667
C) $ 8,750
D) $ 9,250

Question 38

Use the following information to answer Questions.
Liam, Michael and Noah own interests in the LMN Partnership. Their current capital account balances are as follows:
$$\begin{array} { | l | r | } \hline \text { Liam } & \$ 250,000 \\\hline \text { Michael } & 300,000 \\\hline \text { Noah } & 200,000 \\\hline\end{array}$$ Partnership income is shared in a 3:5:2 ratio. Olivia buys a 20% interest in the partnership by acquiring 20% of each existing partner's interest, paying the three partners a total of $175,000. Partnership identifiable net assets are currently reported at amounts approximating fair value.

-Using the transfer of capital interests approach, Olivia's initial capital balance after entering the partnership is:

A) $175,000
B) $170,000
C) $215,000
D) $150,000

Question 39

Use the following information to answer Questions.
Liam, Michael and Noah own interests in the LMN Partnership. Their current capital account balances are as follows:
$$\begin{array} { | l | r | } \hline \text { Liam } & \$ 250,000 \\\hline \text { Michael } & 300,000 \\\hline \text { Noah } & 200,000 \\\hline\end{array}$$ Partnership income is shared in a 3:5:2 ratio. Olivia buys a 20% interest in the partnership by acquiring 20% of each existing partner's interest, paying the three partners a total of $175,000. Partnership identifiable net assets are currently reported at amounts approximating fair value.

-Using the transfer of capital interests approach, Liam's capital balance immediately following admission of Olivia is:

A) $250,000
B) $200,000
C) $262,500
D) $218,750

Question 40

Use the following information to answer Questions.
Liam, Michael and Noah own interests in the LMN Partnership. Their current capital account balances are as follows:
$$\begin{array} { | l | r | } \hline \text { Liam } & \$ 250,000 \\\hline \text { Michael } & 300,000 \\\hline \text { Noah } & 200,000 \\\hline\end{array}$$ Partnership income is shared in a 3:5:2 ratio. Olivia buys a 20% interest in the partnership by acquiring 20% of each existing partner's interest, paying the three partners a total of $175,000. Partnership identifiable net assets are currently reported at amounts approximating fair value.

-Using the recognition of implied goodwill approach, implied goodwill is:

A) $125,000
B) $700,000
C) $175,000
D) $100,000

Question 41

Use the following information to answer Questions.
Liam, Michael and Noah own interests in the LMN Partnership. Their current capital account balances are as follows:
$$\begin{array} { | l | r | } \hline \text { Liam } & \$ 250,000 \\\hline \text { Michael } & 300,000 \\\hline \text { Noah } & 200,000 \\\hline\end{array}$$ Partnership income is shared in a 3:5:2 ratio. Olivia buys a 20% interest in the partnership by acquiring 20% of each existing partner's interest, paying the three partners a total of $175,000. Partnership identifiable net assets are currently reported at amounts approximating fair value.

-Using the recognition of implied goodwill approach, Michael's capital balance after the addition of Olivia to the partnership is:

A) $362,500
B) $290,000
C) $310,000
D) $280,000

Question 42

Which of the following is false regarding the admission of a new partner by purchase of an existing partnership interest?

A) Using the transfer of capital interests approach, total partnership capital stays the same.
B) Using the transfer of capital interests approach, partnership capital of existing partners changes by the same percentage.
C) Using the implied goodwill approach, the only revaluation of partnership net assets is the addition of goodwill.
D) Using the implied goodwill approach, the recognized goodwill is shared among only the existing partners.

Question 43

Use the following information to answer Questions .
The capital balances of the DEF Partnership are as follows:
$$\begin{array} { | l | r | } \hline \text { Danielson } & \$ 180,000 \\\hline \text { Eklund } & 95,000 \\\hline \text { Forsberg } & \underline { 150,000 } \\\hline \text { Total } & \$ 425,000 \\\hline\end{array}$$ The partners' income sharing ratio is: Danielson, 25%; Eklund, 45%; Forsberg, 30%.
Gustafson joins the partnership by contributing $125,000 to the partnership for a 20% interest in partnership capital. Assume the partnership's identifiable net assets are carried at amounts approximating fair value.

-If the bonus method is used, Gustafson's capital balance is:

A) $110,000
B) $125,000
C) $ 85,000
D) $115,000

Question 44

Use the following information to answer Questions .
The capital balances of the DEF Partnership are as follows:
$$\begin{array} { | l | r | } \hline \text { Danielson } & \$ 180,000 \\\hline \text { Eklund } & 95,000 \\\hline \text { Forsberg } & \underline { 150,000 } \\\hline \text { Total } & \$ 425,000 \\\hline\end{array}$$ The partners' income sharing ratio is: Danielson, 25%; Eklund, 45%; Forsberg, 30%.
Gustafson joins the partnership by contributing $125,000 to the partnership for a 20% interest in partnership capital. Assume the partnership's identifiable net assets are carried at amounts approximating fair value.

-If the bonus method is used, Eklund's capital balance after the admission of Gustafson is:

A) $ 98,000
B) $110,000
C) $101,750
D) $ 88,250

Question 45

Use the following information to answer Questions .
The capital balances of the DEF Partnership are as follows:
$$\begin{array} { | l | r | } \hline \text { Danielson } & \$ 180,000 \\\hline \text { Eklund } & 95,000 \\\hline \text { Forsberg } & \underline { 150,000 } \\\hline \text { Total } & \$ 425,000 \\\hline\end{array}$$ The partners' income sharing ratio is: Danielson, 25%; Eklund, 45%; Forsberg, 30%.
Gustafson joins the partnership by contributing $125,000 to the partnership for a 20% interest in partnership capital. Assume the partnership's identifiable net assets are carried at amounts approximating fair value.

-If the goodwill method is used to record the admission of Gustafson, goodwill will be recorded on the books of the partnership in the amount of:

A) $200,000
B) $ 33,750
C) $125,000
D) $ 75,000

Question 46

Use the following information to answer Questions .
The capital balances of the DEF Partnership are as follows:
$$\begin{array} { | l | r | } \hline \text { Danielson } & \$ 180,000 \\\hline \text { Eklund } & 95,000 \\\hline \text { Forsberg } & \underline { 150,000 } \\\hline \text { Total } & \$ 425,000 \\\hline\end{array}$$ The partners' income sharing ratio is: Danielson, 25%; Eklund, 45%; Forsberg, 30%.
Gustafson joins the partnership by contributing $125,000 to the partnership for a 20% interest in partnership capital. Assume the partnership's identifiable net assets are carried at amounts approximating fair value.

-If the goodwill method is used to record the admission of Gustafson, Forsberg's capital balance immediately after the addition of Gustafson is:

A) $210,000
B) $250,000
C) $172,500
D) $225,000

Question 47

Use the following additional information to answer Questions bellow :
Now assume Gustafson paid $90,000 for a 20% interest in partnership capital.

-If the bonus method of admission is used, Gustafson's capital balance is:

A) $ 90,000
B) $103,000
C) $108,000
D) $ 85,000

Question 48

Use the following additional information to answer Questions bellow :
Now assume Gustafson paid $90,000 for a 20% interest in partnership capital.

-If the bonus method is used, Danielson's capital balance after the admission of Gustafson is:

A) $167,000
B) $183,250
C) $180,000
D) $176,750

Question 49

Use the following additional information to answer Questions bellow :
Now assume Gustafson paid $90,000 for a 20% interest in partnership capital.

-If the goodwill method is used to record the admission of Gustafson, goodwill will be recorded on the books of the partnership in the amount of:

A) $0
B) $16,250
C) $20,000
D) $18,750

Question 50

Use the following additional information to answer Questions bellow :
Now assume Gustafson paid $90,000 for a 20% interest in partnership capital.

-If the goodwill method is used to record the admission of Gustafson, Forsberg's capital balance immediately following admission of Gustafson is:

A) $154,875
B) $145,125
C) $150,000
D) $172,500

Question 51

Which of the following statements is true concerning a comparison of the bonus and goodwill methods of recording admission of a new partner by investment of new capital?

A) The goodwill method will typically result in a larger total partnership capital than the bonus method.
B) When the investment by the new partner is less than the new partner's share of the firm's total capital, using the bonus method the capital accounts of the existing partners will increase.
C) When the investment by the new partner is greater than the new partner's share of the firm's total capital, using the goodwill method the capital accounts of the existing partners will be reduced.
D) While the bonus method recognizes a new basis of asset valuation when a new partner invests assets in the partnership, the goodwill method does not.

Question 52

Partners in MNO Partnership have capital accounts and income-sharing percentages as follows:
$$\begin{array} { | l | c | c | } \hline & \text { Capital Balance } & \text { Income Share } \\\hline \text { Partner M } & \$ 150,000 & 25 \% \\\hline \text { Partner N } & 320,000 & 50 \% \\\hline \text { Partner O } & \underline { 180,000 } & \underline { 25 \% } \\\hline \text { Totals } & \underline { \$ 650,000 } & \underline { \underline { 100 \% } } \\\hline\end{array}$$ Partners M and N buy Partner O's interest for $200,000, using their personal assets. The partners retain their relative income-sharing ratio. After this transaction, Partner M's capital balance is:

A) $195,000
B) $190,000
C) $170,000
D) $210,000

Question 53

J, K and L have been partners for many years. J and K acquire L's partnership interest for $300,000, using their personal assets. J contributes $100,000 and K contributes $200,000 for the transaction. The partners' capital balances before L's retirement and their income/loss sharing percentages are as follows:
$$\begin{array} { | c | c | c | } \hline \text { Partner } & \text { Capital Balance } & \text { Income Share } \\\hline \text { J } & \$ 80,000 & 15 \% \\\hline \text { K } & 140,000 & 25 \% \\\hline \text { L } & \underline { 225,000 } & \underline { 60 \% } \\\hline \text { Totals } & \$ 445,000 & \underline { 100 \% } \\\hline\end{array}$$ Assuming J and K maintain their relative income sharing ratio, after L's departure, J's capital balance will be:

A) $180,000
B) $155,000
C) $164,375
D) $172,650

Question 54

A partnership has three partners, Bell, Casey and Duffy, with capital balances of $50,000, $60,000, and $70,000 respectively. The partners share income equally. Duffy retires and is paid using the personal assets of Bell and Casey. Which statement is true concerning the accounting for this transaction?

A) Bell and Casey are required to pay Duffy equal amounts of personal assets, as specified in their income-sharing agreement.
B) Recognition of goodwill is unlikely since there is no arm's-length transaction.
C) Bell and Casey are required to pay Duffy a total of $70,000.
D) If the total paid to Duffy is more than $70,000, implied goodwill is recognized.

Question 55

A partnership has four partners. One partner retires and is paid using partnership assets. The payment made to a retiring partner:

A) Always equals the balance in the retiring partner's capital account.
B) Must be defined in the partnership agreement.
C) Equals one fourth of total partnership net assets, unless the partnership agreement states otherwise.
D) Is defined by either the partnership agreement or as agreed at the time of retirement.

Question 56

Use the following information to answer Questions bellow.
Nunes, Orta and Paulo are partners providing engineering services. Relevant data regarding income-sharing relationships and capital balances are as follows:
$$\begin{array} { | l | c | c | } \hline{ \text { Partner } } & \text { Capital Balance } & \text { IncomeShare } \\\hline \text { Nunes } & \$ 250,000 & 20 \% \\\hline \text { Orta } & 180,000 & 30 \% \\\hline \text { Paulo } & \underline { 150,000 } & 50 \% \\\hline \text { Totals } & \$ 580,000 & 100 \% \\\hline\end{array}$$ All questions are independent of each other.

-Paulo decides to retire and receives $175,000 in cash from the partnership. If the bonus method is used to account for the retirement, Nunes' capital balance after Paulo's retirement is:

A) $240,000
B) $260,000
C) $245,000
D) $255,000

Question 57

Use the following information to answer Questions bellow.
Nunes, Orta and Paulo are partners providing engineering services. Relevant data regarding income-sharing relationships and capital balances are as follows:
$$\begin{array} { | l | c | c | } \hline{ \text { Partner } } & \text { Capital Balance } & \text { IncomeShare } \\\hline \text { Nunes } & \$ 250,000 & 20 \% \\\hline \text { Orta } & 180,000 & 30 \% \\\hline \text { Paulo } & \underline { 150,000 } & 50 \% \\\hline \text { Totals } & \$ 580,000 & 100 \% \\\hline\end{array}$$ All questions are independent of each other.

-Orta decides to retire and receives $159,000 in cash from the partnership. If the bonus method is used to account for the retirement, Paulo's capital balance after Orta's retirement is:

A) $135,000
B) $160,500
C) $165,000
D) $139,500

Question 58

Use the following information to answer Questions bellow.
Nunes, Orta and Paulo are partners providing engineering services. Relevant data regarding income-sharing relationships and capital balances are as follows:
$$\begin{array} { | l | c | c | } \hline{ \text { Partner } } & \text { Capital Balance } & \text { IncomeShare } \\\hline \text { Nunes } & \$ 250,000 & 20 \% \\\hline \text { Orta } & 180,000 & 30 \% \\\hline \text { Paulo } & \underline { 150,000 } & 50 \% \\\hline \text { Totals } & \$ 580,000 & 100 \% \\\hline\end{array}$$ All questions are independent of each other.

-Nunes retires and receives $300,000 in cash from the partnership. Partnership net assets are recorded at amounts approximating fair value. If the partial goodwill approach is used, goodwill is recognized in the amount of:

A) $ 10,000
B) $250,000
C) $100,000
D) $ 50,000

Question 59

Use the following information to answer Questions bellow.
Nunes, Orta and Paulo are partners providing engineering services. Relevant data regarding income-sharing relationships and capital balances are as follows:
$$\begin{array} { | l | c | c | } \hline{ \text { Partner } } & \text { Capital Balance } & \text { IncomeShare } \\\hline \text { Nunes } & \$ 250,000 & 20 \% \\\hline \text { Orta } & 180,000 & 30 \% \\\hline \text { Paulo } & \underline { 150,000 } & 50 \% \\\hline \text { Totals } & \$ 580,000 & 100 \% \\\hline\end{array}$$ All questions are independent of each other.

-Nunes retires and receives $300,000 in cash from the partnership. Partnership identifiable net assets are recorded at amounts approximating fair value. If the partial goodwill approach is used, Orta's capital balance after Nunes' retirement is:

A) $210,000
B) $180,000
C) $220,000
D) $250,000

Question 60

Use the following information to answer Questions bellow.
Nunes, Orta and Paulo are partners providing engineering services. Relevant data regarding income-sharing relationships and capital balances are as follows:
$$\begin{array} { | l | c | c | } \hline{ \text { Partner } } & \text { Capital Balance } & \text { IncomeShare } \\\hline \text { Nunes } & \$ 250,000 & 20 \% \\\hline \text { Orta } & 180,000 & 30 \% \\\hline \text { Paulo } & \underline { 150,000 } & 50 \% \\\hline \text { Totals } & \$ 580,000 & 100 \% \\\hline\end{array}$$ All questions are independent of each other.

-Nunes retires and receives $300,000 in cash from the partnership. Partnership net assets are recorded at amounts approximating fair value. If the total goodwill approach is used, goodwill is recognized in the amount of:

A) $ 10,000
B) $250,000
C) $100,000
D) $ 50,000

Question 61

Use the following information to answer Questions bellow.
Nunes, Orta and Paulo are partners providing engineering services. Relevant data regarding income-sharing relationships and capital balances are as follows:
$$\begin{array} { | l | c | c | } \hline{ \text { Partner } } & \text { Capital Balance } & \text { IncomeShare } \\\hline \text { Nunes } & \$ 250,000 & 20 \% \\\hline \text { Orta } & 180,000 & 30 \% \\\hline \text { Paulo } & \underline { 150,000 } & 50 \% \\\hline \text { Totals } & \$ 580,000 & 100 \% \\\hline\end{array}$$ All questions are independent of each other.

-Nunes retires and receives $300,000 in cash from the partnership. Partnership net assets are recorded at amounts approximating fair value. If the total goodwill approach is used, Paulo's capital balance after Nunes' retirement is:

A) $275,000
B) $250,500
C) $150,000
D) $306,250

Question 62

Use the following information to answer Questions bellow.
Nunes, Orta and Paulo are partners providing engineering services. Relevant data regarding income-sharing relationships and capital balances are as follows:
$$\begin{array} { | l | c | c | } \hline{ \text { Partner } } & \text { Capital Balance } & \text { IncomeShare } \\\hline \text { Nunes } & \$ 250,000 & 20 \% \\\hline \text { Orta } & 180,000 & 30 \% \\\hline \text { Paulo } & \underline { 150,000 } & 50 \% \\\hline \text { Totals } & \$ 580,000 & 100 \% \\\hline\end{array}$$ All questions are independent of each other.

-Nunes retires and receives $220,000 in cash from the partnership. Partnership net assets are recorded at amounts approximating fair value, except its equipment, currently reported at $500,000, is overvalued. If the partial goodwill approach is used, the equipment account is reduced by:

A) $ 30,000
B) $ 60,000
C) $150,000
D) $100,000

Question 63

Use the following information to answer Questions bellow.
Nunes, Orta and Paulo are partners providing engineering services. Relevant data regarding income-sharing relationships and capital balances are as follows:
$$\begin{array} { | l | c | c | } \hline{ \text { Partner } } & \text { Capital Balance } & \text { IncomeShare } \\\hline \text { Nunes } & \$ 250,000 & 20 \% \\\hline \text { Orta } & 180,000 & 30 \% \\\hline \text { Paulo } & \underline { 150,000 } & 50 \% \\\hline \text { Totals } & \$ 580,000 & 100 \% \\\hline\end{array}$$ All questions are independent of each other.

-Nunes retires and receives $220,000 in cash from the partnership. Partnership net assets are recorded at amounts approximating fair value, except its equipment, currently reported at $500,000, is overvalued. If the total goodwill approach is used, Orta's capital account after Nunes' retirement is:

A) $123,750
B) $225,000
C) $180,000
D) $135,000

Question 64

Dan, Evan and Flora are partners who share income in a 5:4:3 ratio. Each has a capital balance of $150,000. Dan retires from the partnership and is paid $165,000. In recording the retirement, no change was made to Evan's capital account. Which method of recording the retirement was used?

A) Bonus
B) Partial goodwill
C) Total goodwill
D) Transfer of assets

Question 65

Mason, who has a 40 percent interest in a partnership, retires and receives a settlement payment that is $25,000 more than his capital balance.
Which of the following statements is correct?

A) Under the bonus method, the capital of the remaining partners will increase.
B) Under the partial goodwill approach, partnership assets will be written up by $25,000.
C) Under the total goodwill approach, partnership assets will be written up by $100,000.
D) Under the bonus method, partial goodwill approach, and total goodwill approach, the capital of the remaining partners will change.

Question 66

In a partnership liquidation, when a partner has a capital deficiency, the right of offset:

A) Allows the partner to invest personal assets to bring the capital balance to zero.
B) Reclassifies a partnership loan receivable from the partner as a reduction in the deficiency.
C) Requires all the other partners to have positive capital balances, to absorb the partner's capital deficiency.
D) Reclassifies a partnership loan payable to the partner as a reduction in the deficiency.

Question 67

If an individual partner is insolvent and the partnership is being liquidated, a creditor may petition the court to specify that any partnership payments to which the individual partner becomes entitled shall be made to the creditor. This specification is called:

A) A charging order
B) Foreclosure
C) The rule of dual priorities
D) The right of offset

Question 68

Primo and Quadros are partners who share income in a 1:4 ratio and have capital balances of $60,000 and $180,000 respectively. Book value of total assets is $500,000, and liabilities total $260,000. Sale of all assets results in total available cash of $400,000. The amount to be distributed to Primo upon liquidation is:

A) $60,000
B) $10,000
C) $40,000
D) $50,000

Question 69

Cisse, Diallo, and Esteves are partners who share income in a 1:2:2 ratio, and have capital balances of $20,000, $120,000, and $65,000 respectively. Book value of total assets is $500,000, and total liabilities are $295,000. Sale of all assets results in total available cash of $360,000. Assuming no further investment by the partners, the amount to be distributed to Diallo upon liquidation is:

A) $ 0
B) $ 60,000
C) $ 60,800
D) $ 64,000

Question 70

Use the following information to answer Questions.
The balance sheet of the TUV Partnership is as follows:
$\begin{array}{|l|r|l|r|}\hline \text { Assets } & & \text { Liabilities } & \\\hline \text { Cash } & \$ 40,000 & \text { Loan payable-Vaswani } & \$ 20,000 \\\hline \text { Loan receivable-Upreti } & 30,000 & \text { Other liabilities } & \underline{190,000} \\\hline \text { Other assets } & 530,000 & \text { Total liabilities } & \underline{210,000} \\\hline & & \text { Capital } & \\\hline & & \text { Talwar } & 47,000 \\\hline & & \text { Upreti } & 260,000 \\\hline & & \text { Vaswani } & \underline{83,000} \\\hline & & \text { Total capital } & \underline{390,000} \\\hline \text { Total } & \$ 600,000 & \text { Total } & \$ 600,000 \\\hline\end{array}$
The partners share income in a 3:5:2 ratio. The other assets are sold for $350,000, and no other capital is contributed by any of the partners.

-How much total cash is distributed to Talwar?

A) $ 0
B) $ 7,000
C) $15,000
D) $28,000

Question 71

Use the following information to answer Questions.
The balance sheet of the TUV Partnership is as follows:
$\begin{array}{|l|r|l|r|}\hline \text { Assets } & & \text { Liabilities } & \\\hline \text { Cash } & \$ 40,000 & \text { Loan payable-Vaswani } & \$ 20,000 \\\hline \text { Loan receivable-Upreti } & 30,000 & \text { Other liabilities } & \underline{190,000} \\\hline \text { Other assets } & 530,000 & \text { Total liabilities } & \underline{210,000} \\\hline & & \text { Capital } & \\\hline & & \text { Talwar } & 47,000 \\\hline & & \text { Upreti } & 260,000 \\\hline & & \text { Vaswani } & \underline{83,000} \\\hline & & \text { Total capital } & \underline{390,000} \\\hline \text { Total } & \$ 600,000 & \text { Total } & \$ 600,000 \\\hline\end{array}$
The partners share income in a 3:5:2 ratio. The other assets are sold for $350,000, and no other capital is contributed by any of the partners.

-How much total cash is distributed to Vaswani?

A) $ 0
B) $45,000
C) $55,000
D) $65,000

Question 72

Sophia and Thomas are in business as the ST partnership. The partnership is undergoing an installment liquidation. Sophia and Thomas share income in a 4:1 ratio, and have current capital balances of $40,000 and $70,000, respectively. $30,000 in cash is available for distribution. Assuming all liabilities have been paid, what is the amount of the safe payment to Thomas?

A) $ 0
B) $20,000
C) $24,000
D) $30,000

Question 73

Grayson and Harrison are in business as GH Partnership, which is undergoing an installment liquidation. Grayson and Harrison share income in a 3:2 ratio, and have current capital balances of $120,000 and $130,000, respectively. $80,000 in cash is available for distribution. Assuming all liabilities have been paid, what is the amount of the safe payment to Grayson?

A) 0
B) $48,000
C) $18,000
D) $20,000

Question 74

Foster, Gabriel and Harper are in business as FGH Partnership. The partnership has the following balance sheet:
$$\begin{array} { | l | r | l | r | } \hline \text { Assets } & & \text { Liabilities } & \\\hline \text { Cash } & \$ 10,000 & \text { Accounts payable } & \$ 20,000 \\\hline \text { Inventory } & 25,000 & \text { Bank loan payable } & 80,000 \\\hline \text { Equipment } & 365,000 & \text { Total liabilities } & 100,000 \\\hline & & \text { Capital } & \\\hline & & \text { Foster } & 60,000 \\\hline & & \text { Gabriel } & 120,000 \\\hline & & \text { Harper } & \underline { 120,000 } \\\hline & & \text { Total capital } & \underline { 300,000 } \\\hline \text { Total } & \$ 400,000 & \text { Total } & \$ 400,000 \\\hline\end{array}$$ The partners share income in a 1:1:2 ratio. The inventory is sold for $15,000 and equipment with a book value of $150,000 is sold for $100,000. All available cash is distributed to the partners. What is the amount of the safe payment to Gabriel?

A) $ 25,000
B) $ 18,500
C) $125,000
D) $105,000

Question 75

The DE partnership is undergoing an installment liquidation. Partners D and E share income in a 3:2 ratio and have current capital balances of $60,000 and $80,000, respectively. No loans are receivable from or payable to partners. After outside creditors are paid, if $50,000 in cash becomes available for distribution to the partners, how is it distributed?

A) $50,000 to D; $0 to E
B) $30,000 to D; $20,000 to E
C) $6,000 to D; $44,000 to E
D) $12,000 to D; $38,000 to E

Question 76

Foster, Gabriel and Harper are in business as FGH Partnership. The partnership has the following balance sheet:
$$\begin{array} { | l | r | l | r | } \hline \text { Assets } & & \text { Liabilities } & \\\hline \text { Cash } & \$ 10,000 & \text { Accounts payable } & \$ 20,000 \\\hline \text { Inventory } & 25,000 & \text { Bank loan payable } & \underline { 80,000 } \\\hline \text { Equipment } & 365,000 & \text { Total liabilities } & \underline { 100,000 } \\\hline & & \text { Capital } & \\\hline & & \text { Foster } & 60,000 \\\hline & & \text { Gabriel } & 120,000 \\\hline & & \text { Harper } & \underline { 120,000 } \\\hline & & \text { Total capital } & \underline { 300,000 } \\\hline \text { Total } & \$ 400,000 & \text { Total } & \$ 400,000 \\\hline\end{array}$$ The partners share income in a 2:2:1 ratio. In liquidation, what total amount of cash must be distributed to Gabriel and Harper before Foster receives a distribution?

A) $150,000
B) $180,000
C) $360,000
D) $600,000

Question 77

Use the following information to answer Questions.
The VWX partnership is undergoing an installment liquidation. Partners Victoria, Willow, and Xavier share income in a 3:5:2 ratio. The partnership balance sheet is as follows:
$$\begin{array} { | l | r | l | l | } \hline \text { Assets } & & \text { Liabilities } & \\\hline \text { Cash } & \$ 7,000 & \text { Accounts payable } & \$ 20,000 \\\hline \text { Accounts receivable } & 10,000 & \text { Loan payable-Willow } & 50,000 \\\hline \text { Loan receivable-Victoria } & 13,000 & \text { Total liabilities } & \underline { 70,000 } \\\hline \text { Inventory } & 25,000 & \text { Capital } & \\\hline \text { Buildings and equipment, net } & 545,000 & \text { Victoria } & 100,000 \\\hline & & \text { Willow } & 250,000 \\\hline & & \text { Xavier } & \underline { 180,000 } \\\hline & & \text { Total capital } & \underline { 530,000 } \\\hline \text { Total } & \$ 600,000 & \text { Total } & \$ 600,000 \\\hline\end{array}$$ You are preparing a cash distribution plan for the partnership. Each question bellow is independent.

-If $249,000 is available to distribute to the partners, how is it distributed?

A) $40,000 to Victoria, $160,000 to Willow, and $49,000 to Xavier
B) $249,000 to Xavier
C) $125,000 to Willow and $124,000 to Xavier
D) $135,000 to Willow and $114,000 to Xavier

Question 78

Use the following information to answer Questions.
The VWX partnership is undergoing an installment liquidation. Partners Victoria, Willow, and Xavier share income in a 3:5:2 ratio. The partnership balance sheet is as follows:
$$\begin{array} { | l | r | l | l | } \hline \text { Assets } & & \text { Liabilities } & \\\hline \text { Cash } & \$ 7,000 & \text { Accounts payable } & \$ 20,000 \\\hline \text { Accounts receivable } & 10,000 & \text { Loan payable-Willow } & 50,000 \\\hline \text { Loan receivable-Victoria } & 13,000 & \text { Total liabilities } & \underline { 70,000 } \\\hline \text { Inventory } & 25,000 & \text { Capital } & \\\hline \text { Buildings and equipment, net } & 545,000 & \text { Victoria } & 100,000 \\\hline & & \text { Willow } & 250,000 \\\hline & & \text { Xavier } & \underline { 180,000 } \\\hline & & \text { Total capital } & \underline { 530,000 } \\\hline \text { Total } & \$ 600,000 & \text { Total } & \$ 600,000 \\\hline\end{array}$$ You are preparing a cash distribution plan for the partnership. Each question bellow is independent.

-If $300,000 is available to distribute to the partners, how is it distributed?

A) $172,600 to Willow and $127,400 to Xavier
B) $1,400 to Victoria, $157,600 to Willow, and $141,000 to Xavier
C) $6,900 to Victoria, $166,500 to Willow, and $126,600 to Xavier
D) $23,000 to Victoria, $155,000 to Willow, and $122,000 to Xavier

Question 79

Use the following information to answer Questions.
The VWX partnership is undergoing an installment liquidation. Partners Victoria, Willow, and Xavier share income in a 3:5:2 ratio. The partnership balance sheet is as follows:
$$\begin{array} { | l | r | l | l | } \hline \text { Assets } & & \text { Liabilities } & \\\hline \text { Cash } & \$ 7,000 & \text { Accounts payable } & \$ 20,000 \\\hline \text { Accounts receivable } & 10,000 & \text { Loan payable-Willow } & 50,000 \\\hline \text { Loan receivable-Victoria } & 13,000 & \text { Total liabilities } & \underline { 70,000 } \\\hline \text { Inventory } & 25,000 & \text { Capital } & \\\hline \text { Buildings and equipment, net } & 545,000 & \text { Victoria } & 100,000 \\\hline & & \text { Willow } & 250,000 \\\hline & & \text { Xavier } & \underline { 180,000 } \\\hline & & \text { Total capital } & \underline { 530,000 } \\\hline \text { Total } & \$ 600,000 & \text { Total } & \$ 600,000 \\\hline\end{array}$$ You are preparing a cash distribution plan for the partnership. Each question bellow is independent.

-A total of $200,000 in cash has been distributed according to the cash distribution plan, and Victoria receives equipment with a fair value of $12,000. How much cash must be distributed to Willow before Victoria receives any further distributions?

A) $45,000
B) $55,000
C) $65,000
D) $75,000

Question 80

At the beginning of 2020, an investor purchases 50,000 exchange-traded units of Seneca Energy Company, which is organized as a Master Limited Partnership. The investment cost $700,000. Per unit allocations of taxable income and cash distributions take place at the end of each year, as follows:
$$\begin{array} { l r r r } & \mathbf { 2 0 2 0 } & \mathbf { 2 0 2 1 } & \mathbf { 2 0 2 2 } \\\text { Taxable income } & \$ 0.80 & \$ 0.75 & \$ 0.90 \\\text { Cash distributions } & 1.30 & 1.35 & 1.40\end{array}$$ Taxable income is taxed at the investor's personal tax rate, while the excess cash distribution reduces the basis of the investment. At the time of sale, the basis reduction is taxed at the investor's personal rate, while the remaining gain is taxed at the capital gains rate. The investor's personal marginal tax rate is 30%, and the capital gains rate is 15%. The investor sells the investment for $1,000,000 at the end of 2022.
Required
a. Prepare a schedule of the after-tax return, in dollars, for this investment, for each of the years 2020, 2021, and 2022.
b. Calculate the tax on the sale of the investment at the end of 2022.
c. Calculate the present value of the investor's savings from delaying the tax on excess cash distributions. Use a 5% risk-adjusted discount rate.