Deck 15: Partnerships: Formation, operation, and Changes in Membership

Question 1

Which of the following accounts is not maintained for each partner in its accounting records?

A)Capital account
B)Drawing account
C)Earnings account
D)Loan account

Answer 1

C

Question 2

A partnership is a(n):
I)accounting entity.
II)taxable entity.

A)I only
B)II only
C)Neither I nor II
D)Both I and II

Answer 2

A

Question 3

Which of the following statements best describes accounting for a partnership?

A)A partnership may be a profit or a nonprofit entity.
B)A partnership may use federal income tax rules to account for transactions in their journals and ledger accounts.
C)A partnership's equity section contains both capital and retained earnings accounts.
D)A partnership may only distribute money through a dividend payment.

Answer 3

B

Question 4

A joint venture may be organized as a:
I)Partnership.
II)Corporation.
III)Undivided interest.

A)I only
B)II only
C)I or III only
D)I,II,or III

Question 5

A partner's tax basis in a partnership is comprised of which of the following items?
I)The partner's tax basis of assets contributed to the partnership.
II)The amount of the partner's liabilities assumed by the other partners.
III)The partner's share of other partners' liabilities assumed by the partnership.

A)I plus II minus III
B)I plus II plus III
C)I minus II plus III
D)I minus II minus III

Question 6

The APB partnership agreement specifies that partnership net income be allocated as follows:
Average capital balances for the current year were $50,000 for A,$30,000 for P,and $20,000 for B.

Refer to the information given.Assuming a current year net income of $150,000,what amount should be allocated to each partner?

A)Option A
B)Option B
C)Option C
D)Option D

Question 7

The DEF partnership reported net income of $130,000 for the year ended December 31,2008.According to the partnership agreement,partnership profits and losses are to be distributed as follows:
How should partnership net income for 2008 be allocated to D,E,and F?

A)Option A
B)Option B
C)Option C
D)Option D

Question 8

Jones and Smith formed a partnership with each partner contributing the following items:
Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed by the Jones and Smith partnership.

Refer to the above information.What is the balance in each partner's capital account for financial accounting purposes?

A)Option A
B)Option B
C)Option C
D)Option D

Question 9

Which of the following statements best describes limited partnerships?

A)In an LLP,there must be at least one general partner that is personally liable for the obligations of the partnership and has management responsibilities.
B)There are no general or limited partners in an LP;each partner has the rights and duties of a general partner,but limited legal liability.
C)The identifier LP or LLP need not be included in the name or identification of a limited partnership.
D)If the presumption of control by the general partner can be overcome,the partner would account for its investment using the equity method of accounting.

Question 10

Which of the following accounts could be found in the PQ partnership's general ledger?
I)Due from P
II)P,Drawing
III)Loan Payable to Q

A)I,II
B)I,III
C)II,III
D)I,II,and III

Question 11

Shue,a partner in the Financial Brokers Partnership,has a 30 percent share in partnership profits and losses.Shue's capital account had a net decrease of $100,000 during 20X8.During 20X8,Shue withdrew $240,000 as withdrawals and contributed equipment valued at $50,000 to the partnership.What was the net income of the Financial Brokers Partnership for 20X8?

A)$633,334
B)$466,666
C)$300,000
D)$190,000

Question 12

Transferable interest of a partner includes all of the following except:

A)the partner's share of the profits and losses of the partnership.
B)the right to receive distributions.
C)the right to receive any liquidating distribution.
D)the authority to transact any of the partnership's business operations.

Question 13

The JPB partnership reported net income of $160,000 for the year ended December 31,2008.According to the partnership agreement,partnership profits and losses are to be distributed as follows:
How should partnership net income for 2008 be allocated to J,P,and B?

A)Option A
B)Option B
C)Option C
D)Option D

Question 14

A limited liability company (LLC):
I)is governed by the laws of the state in which it is formed.
II)provides liability protection to its investors.
III)does not offer pass-through taxation benefits of partnerships.

A)Both I and III.
B)III.
C)Both I and II.
D)I,II,and II.

Question 15

When a partnership is formed,noncash assets contributed by partners should be recorded:
I)at their respective book values for income tax purposes.
II)at their respective fair values for financial accounting purposes.

A)I only
B)II only
C)Both I and II
D)Neither I nor II

Question 16

Which of the following accounts could be found in the general ledger of a partnership?

A)Option A
B)Option B
C)Option C
D)Option D

Question 17

Jones and Smith formed a partnership with each partner contributing the following items:
Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed by the Jones and Smith partnership.

Refer to the above information.What is each partner's tax basis in the Jones and Smith partnership?

A)Option A
B)Option B
C)Option C
D)Option D

Question 18

Griffin and Rhodes formed a partnership on January 1,2009.Griffin contributed cash of $120,000 and Rhodes contributed land with a fair value of $160,000.The partnership assumed the mortgage on the land which amounted to $40,000 on January 1.Rhodes originally paid $90,000 for the land.On July 31,2009,the partnership sold the land for $190,000.Assuming Griffin and Rhodes share profits and losses equally,how much of the gain from sale of land should be credited to Griffin for financial accounting purposes?

A)$0
B)$15,000
C)$35,000
D)$45,000

Question 19

The partnership of X and Y shares profits and losses in the ratio of 60 percent to X and 40 percent to Y.For the year 20X8,partnership net income was double X's withdrawals.Assume X's beginning capital balance was $80,000,and ending capital balance (after closing)was $140,000.Partnership net income for the year was:

A)$120,000.
B)$300,000.
C)$500,000.
D)$600,000.

Question 20

RD formed a partnership on February 10,20X9.R contributed cash of $150,000,while D contributed inventory with a fair value of $120,000.Due to R's expertise in selling,D agreed that R should have 60 percent of the total capital of the partnership.R and D agreed to recognize goodwill.What is the total capital of the RD partnership and the capital balance of R after the goodwill is recognized?

A)Option A
B)Option B
C)Option C
D)Option D

Question 21

When a new partner is admitted into a partnership and the new partner receives a capital credit greater than the tangible assets contributed,which of the following explains the difference?
I)The old partners' goodwill is being recognized.
II)The new partner's goodwill is being recognized.

A)I only
B)II only
C)Either I or II
D)Both I and II

Question 22

Refer to the above information.Which statement below is correct if a new partner receives a bonus upon contributing assets into the partnership?

A)B < A and D = C - A
B)B > A and D = C + A
C)A = B and A = D + C
D)B > A and C = D + A

Question 23

When a partner retires from a partnership and the retiring partner is paid more than the capital balance in her account,which of the following explains the difference?
I)The retiring partner is receiving a bonus from the other partners.
II)The retiring partner's goodwill is being recognized.

A)I only
B)II only
C)Either I or II
D)Neither I nor II

Question 24

Which of the following observations is true of an S corporation?

A)It elects to be taxed in the same manner as a corporation.
B)It does not have the burden of double taxation of corporate income.
C)Its shareholders have personal liability for the corporation's obligations.
D)Its primary income source should be passive investments.

Question 25

When the old partners receive a bonus upon admission of a new partner into a partnership,the bonus is allocated to:
I)all the partners in their profit and loss sharing ratio.
II)the existing partners in their profit and loss sharing ratio.

A)I only
B)II only
C)Either I or II
D)Neither I nor II

Question 26

When a new partner is admitted into a partnership and the old partners' goodwill is recognized,the goodwill is allocated to:
I)all the partners in their profit-and-loss-sharing ratio.
II)the old partners in their profit and loss sharing ratio.

A)I only
B)II only
C)Either I or II
D)Neither I nor II

Question 27

Refer to the above information.Which statement below is correct if the old partners receive a bonus upon the contribution of assets into the partnership by a new partner?

A)B < A and D = C - A
B)B + A and D > C + A
C)B < A and D = C + A
D)B > A and D = C + A

Question 28

When a new partner is admitted into a partnership and the capital of the old partners decreases,which of the following explains the reason for the decrease?
I)Undervalued liabilities were written up to their fair values.
II)Undervalued assets were written up to their fair values.

A)I only
B)II only
C)Both I and II
D)Neither I nor II

Question 29

The terms of a partnership agreement provide that one of the partners is to receive a salary allowance of $30,000,plus a bonus of 20 percent of income after deduction of the bonus and the salary allowance.If income is $150,000,the bonus should be:

A)$18,000
B)$20,000
C)$24,000
D)$30,000

Question 30

Refer to the above information.Which statement below is correct if goodwill of the old partners is recognized upon the contribution of assets into the partnership by a new partner?

A)B = A and D < C + A
B)B = A and D > C + A
C)B < A and D = C + A
D)B > A and D < C + A

Question 31

The APB partnership agreement specifies that partnership net income be allocated as follows:
Average capital balances for the current year were $50,000 for A,$30,000 for P,and $20,000 for B.

Refer to the information given.Assuming a current year net income of $50,000,what amount should be allocated to each partner?

A)Option A
B)Option B
C)Option C
D)Option D

Question 32

Refer to the above information.Which statement below is correct if a new partner purchases an interest in capital directly from the old partners?

A)C < D
B)C = D
C)C = D and B = A
D)C < D and B = A

Question 33

In the RST partnership,Ron's capital is $80,000,Stella's is $75,000,and Tiffany's is $50,000.They share income in a 3:2:1 ratio,respectively.Tiffany is retiring from the partnership.Each of the following questions is independent of the others.
Refer to the above information.Tiffany is paid $60,000,and no goodwill is recorded.In the journal entry to record Tiffany's withdrawal:

A)Tiffany,Capital will be credited for $60,000.
B)Ron,Capital will be debited for $5,000.
C)Stella,Capital will be debited for $4,000.
D)Cash will be debited for $60,000.

Question 34

In the ABC partnership (to which Daniel seeks admittance),the capital balances of Albert,Bert,and Connell,who share income in the ratio of 5:3:2 are:

Based on the preceding information,what amount of goodwill will be recorded if Daniel invests $450,000 for a one-third interest?

A)$0
B)$10,000
C)$50,000
D)$100,000

Question 35

Refer to the above information.Which statement below is correct if a new partner's goodwill is recognized upon contributing assets into the partnership?

A)B = A and D > C + A
B)B < A and D < C + A
C)B > A and D = C + A
D)B > A and D > C + A

Question 36

In the AD partnership,Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio,respectively.They decide to admit David to the partnership.Each of the following questions is independent of the others.
Refer to the information provided above.What amount will David have to invest to give him one-fifth percent interest in the capital of the partnership if no goodwill or bonus is recorded?

A)$60,000
B)$36,000
C)$50,000
D)$45,000

Question 37

In the ABC partnership (to which Daniel seeks admittance),the capital balances of Albert,Bert,and Connell,who share income in the ratio of 5:3:2 are:

Based on the preceding information,if no goodwill or bonus is recorded,how much should Daniel invest for a 20 percent interest?

A)$400,000
B)$200,000
C)$300,000
D)$250,000

Question 38

When a new partner is admitted into a partnership and the new partner receives a capital credit less than the tangible assets contributed,which of the following explains the difference?
I)The new partner's goodwill has been recognized.
II)The old partners received a bonus from the new partner.

A)I only
B)II only
C)Either I or II
D)Neither I nor II

Question 39

In the RST partnership,Ron's capital is $80,000,Stella's is $75,000,and Tiffany's is $50,000.They share income in a 3:2:1 ratio,respectively.Tiffany is retiring from the partnership.Each of the following questions is independent of the others.
Refer to the above information.Tiffany is paid $56,000,and all implied goodwill is recorded.What is the total amount of goodwill recorded?

A)$0
B)$6,000
C)$30,000
D)$36,000

Question 40

In the RST partnership,Ron's capital is $80,000,Stella's is $75,000,and Tiffany's is $50,000.They share income in a 3:2:1 ratio,respectively.Tiffany is retiring from the partnership.Each of the following questions is independent of the others.
Refer to the above information.Tiffany is paid $60,000,and no goodwill is recorded.What is the Ron's capital balance after Tiffany withdraws from the partnership?

A)$74,000
B)$71,000
C)$75,000
D)$86,000

Question 41

In the AD partnership,Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio,respectively.They decide to admit David to the partnership.Each of the following questions is independent of the others.
Refer to the information provided above.David invests $40,000 for a one-fifth interest in the total capital of $220,000.What are the capital balances of Allen and Daniel after David is admitted into the partnership?

A)Option A
B)Option B
C)Option C
D)Option D

Question 42

In the AD partnership,Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio,respectively.They decide to admit David to the partnership.Each of the following questions is independent of the others.
Refer to the information provided above.Allen and Daniel agree that some of the inventory is obsolete.The inventory account is decreased before David is admitted.David invests $40,000 for a one-fifth interest.What are the capital balances of Allen and Daniel after David is admitted into the partnership?

A)Option A
B)Option B
C)Option C
D)Option D

Question 43

In the AD partnership,Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio,respectively.They decide to admit David to the partnership.Each of the following questions is independent of the others.
Refer to the information provided above.David invests $50,000 for a one-fifth interest.What amount of goodwill will be recorded?

A)$20,000
B)$4,000
C)$40,000
D)$15,000

Question 44

In the AD partnership,Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio,respectively.They decide to admit David to the partnership.Each of the following questions is independent of the others.
Refer to the information provided above.David directly purchases a one-fifth interest by paying Allen $34,000 and Daniel $10,000.The land account is increased before David is admitted.What are the capital balances of Allen and Daniel after David is admitted into the partnership?

A)Option A
B)Option B
C)Option C
D)Option D

Question 45

In the JAW partnership,Jane's capital is $100,000,Anne's is $80,000,and William's is $75,000.They share income in a 3:2:1 ratio,respectively.William is retiring from the partnership.
Required
Prepare journal entries to record William's withdrawal according to each of the following independent assumptions:
a.William is paid $80,000,and no goodwill is recorded.
b.William is paid $85,000,and only his share of the goodwill is recorded.
c.William is paid $78,000,and all implied goodwill is recorded.

Question 46

Paul and Ray sell musical instruments through their partnership.To bring in additional funds and expertise,they decide to admit Janet to the partnership.Paul's capital is $400,000,Ray's capital is $200,000,and they share income in a ratio of 7:3,respectively.
Required
Record Janet's admission for each of the following independent situations:
a)Janet invests $180,000 for a one-fourth interest.Goodwill is to be recorded.
b)Paul and Ray agree that some of the inventory is obsolete.The inventory account is decreased before Janet is admitted.Janet invests $190,000 for a one-fourth interest.

Question 47

Apple and Betty are planning on beginning a new business.They plan on forming a partnership.Apple will contribute $300,000 and will not be working.Betty will be working full time.They plan on splitting profits equally.They approach you,as an accounting major,to confirm their thoughts.What do you recommend?

Question 48

Net income for Levin-Tom partnership for 2009 was $125,000.Levin and Tom have agreed to distribute partnership net income according to the following plan:
Additional Information for 2009 follows:
1.Levin began the year with a capital balance of $75,000.
2.Tom began the year with a capital balance of $100,000.
3.On March 1,Levin invested an additional $25,000 into the partnership.
4.On October 1,Tom invested an additional $20,000 into the partnership.
5.Throughout 2009,each partner withdrew $200 per week in anticipation of partnership net income.The partners agreed that these withdrawals are not to be included in the computation of average capital balances for purposes of income distributions.
Required:
a.Prepare a schedule that discloses the distribution of partnership net income for 2009.Show supporting computations in good form.
b.Prepare the statement of partners' capital at December 31,2009.
c.How would your answer to part a change if all of the provisions of the income distribution plan were the same except that the salaries were $45,000 to Levin and $60,000 to Jack?

Question 49

In the AD partnership,Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio,respectively.They decide to admit David to the partnership.Each of the following questions is independent of the others.
Refer to the information provided above.David directly purchases a one-fifth interest by paying Allen $34,000 and Daniel $10,000.The land account is increased before David is admitted.By what amount is the land account increased?

A)$40,000
B)$10,000
C)$36,000
D)$20,000

Question 50

Miller and Davis,partners in a consulting business,share profits and losses in the ratio of 3:2,respectively.Prior to recording the admission of Shaw as a new partner,Miller has a capital balance of $80,000,and Davis has a capital balance of $40,000.
Required:
For each of the following independent cases,prepare the journal entry that was made to record the admission of Shaw into the partnership.
1)Shaw purchased 20 percent of the respective capital balances of Miller and Davis,paying $20,000 cash directly to each of them.
2)Shaw invested $30,000 cash in the partnership for a 20 percent ownership interest.Total capital after recording his admission was $150,000.
3)Shaw invested $40,000 cash into the partnership for a 20 percent ownership interest.Total capital after recording his admission was $160,000.
4)Shaw invested $50,000 into the partnership for a 20 percent interest.Goodwill is to be recognized.

Question 51

In the AD partnership,Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio,respectively.They decide to admit David to the partnership.Each of the following questions is independent of the others.
Refer to the information provided above.David invests $40,000 for a one-fifth interest in the total capital of $220,000.The journal to record David's admission into the partnership will include:

A)a credit to Cash for $40,000.
B)a debit to Allen,Capital for $3,000.
C)a credit to David,Capital for $40,000.
D)a credit to Daniel,Capital for $1,000.

Question 52

The PQ partnership has the following plan for the distribution of partnership net income (loss):
Required:
Calculate the distribution of partnership net income (loss)for each independent situation below (for each situation,assume the average capital balance of P is $140,000 and of Q is $240,000).
1.Partnership net income is $360,000.
2.Partnership net income is $240,000.
3.Partnership net loss is $40,000.

Question 53

In the AD partnership,Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio,respectively.They decide to admit David to the partnership.Each of the following questions is independent of the others.
Refer to the information provided above.Assume that David invests $50,000 for a one-fourth interest.Goodwill is to be recorded.The journal to record David's admission into the partnership will include:

A)a credit to cash for $50,000.
B)a debit to goodwill for $7,500.
C)a credit to David,Capital for $60,000.
D)a credit to David,Capital for $50,000.

Question 54

Two sole proprietors,L and M,agreed to form a partnership on January 1,2009.The trial balance for each proprietorship is shown below as of January 1,2009.
The LM partnership will take over the assets and assume the liabilities of the proprietors as of January 1,2009.
Required:
a)Prepare a balance sheet,for financial accounting purposes,for the LM partnership as of January 1,2009.
b)In addition,assume that M agreed to recognize the goodwill generated by L's business.Accordingly,M agreed to recognize an amount for L's goodwill such that L's capital equaled M's capital on January 1,2009.Given this alternative,how does the balance sheet prepared for requirement A change?

Question 55

The ABC partnership had net income of $100,000 for 2009.They allocate profits and losses in the ratio 5:3:2.After closing the 12/31/2009 books they discovered that $30,000 was spent on a piece of land in December 2009 and was expensed.What should happen?

Question 56

In the AD partnership,Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio,respectively.They decide to admit David to the partnership.Each of the following questions is independent of the others.
Refer to the information provided above.Allen and Daniel agree that some of the inventory is obsolete.The inventory account is decreased before David is admitted.David invests $40,000 for a one-fifth interest.What is the amount of inventory written down?

A)$4,000
B)$20,000
C)$15,000
D)$10,000