Deck 9: Partnerships: Formation and Operations

Question 1

The partnership of Clapton,Seidel,and Thomas was insolvent and will be unable to pay $30,000 in liabilities currently due.What recourse was available to the partnership's creditors?

A)They must present equal claims to the three partners as individuals.
B)They must try obtain a payment from the partner with the largest capital account balance.
C)They cannot seek remuneration from the partners as individuals.
D)They may seek remuneration from any partner they choose.
E)They must present their claims to the three partners in the order of the partners' capital account balances.

Answer 1

D

Question 2

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was Cleary's total share of net income for 2011?

A)$34,420.
B)$75,540.
C)$65,540.
D)$70,040.
E)$61,420.

Answer 2

$34,420.

Question 3

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was the remainder portion of net income allocated to Nolan for 2011?

A)$45,440
B)$58,040
C)$70,040
D)$72,000
E)$82,040

Answer 3

$45,440

Question 4

The dissolution of a partnership occurs

A)only when the partnership sells its assets and permanently closes its books.
B)only when a partner leaves the partnership.
C)at the end of each year,when income is allocated to the partners.
D)only when a new partner is admitted to the partnership.
E)when there is any change in the individuals who make up the partnership.

Question 5

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was Wasser's capital balance at the end of 2011?

A)$201,000.
B)$263,520.
C)$264,540.
D)$304,040.
E)$313,780.

Question 6

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was the total capital balance for the partnership at December 31,2010?

A)$600,000
B)$564,000
C)$535,000
D)$523,000
E)$545,000

Question 7

The advantages of the partnership form of business organization,compared to corporations,include

A)single taxation.
B)ease of raising capital.
C)mutual agency.
D)limited liability.
E)difficulty of formation.

Question 8

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was Wasser's capital balance at the end of 2010?

A)$150,000.
B)$160,000.
C)$165,000.
D)$213,000.
E)$201,000.

Question 9

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was Nolan's capital balance at the end of 2010?

A)$200,000.
B)$224,000.
C)$238,000.
D)$246,000.
E)$254,000.

Question 10

When the hybrid method is used to record the withdrawal of a partner,the partnership

A)revalues assets and liabilities and records goodwill to the continuing partner but not to the withdrawing partner.
B)revalues liabilities but not assets,and no goodwill is recorded.
C)can recognize goodwill but does not revalue assets and liabilities.
D)revalues assets but not liabilities,and records goodwill to the continuing partner but not to the withdrawing partner.
E)revalues assets and liabilities but does not record goodwill.

Question 11

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was Nolan's total share of net income for 2010?

A)$63,000.
B)$53,000.
C)$58,000.
D)$29,000.
E)$51,000.

Question 12

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was Wasser's total share of net income for 2010?

A)$63,000.
B)$53,000.
C)$58,000.
D)$29,000.
E)$51,000.

Question 13

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was the amount of interest attributed to Wasser for 2011?

A)$17,600
B)$18,800
C)$20,100
D)$17,800
E)$30,100

Question 14

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was Wasser's total share of net income for 2011?

A)$34,420.
B)$75,540.
C)$65,540.
D)$70,040.
E)$61,420.

Question 15

The disadvantages of the partnership form of business organization,compared to corporations,include

A)the legal requirements for formation.
B)unlimited liability for the partners.
C)the requirement for the partnership to pay income taxes.
D)the extent of governmental regulation.
E)the complexity of operations.

Question 16

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was Nolan's capital balance at the end of 2011?

A)$139,420.
B)$246,000.
C)$276,540.
D)$279,440.
E)$304,040.

Question 17

Cherryhill and Hace had been partners for several years,and they decided to admit Quincy to the partnership.The accountant for the partnership believed that the dissolved partnership and the newly formed partnership were two separate entities.What method would the accountant have used for recording the admission of Quincy to the partnership?

A)The bonus method.
B)The equity method.
C)The goodwill method.
D)The proportionate method.
E)The cost method.

Question 18

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was Cleary's total share of net income for 2010?

A)$63,000.
B)$53,000.
C)$58,000.
D)$29,000.
E)$51,000.

Question 19

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was Cleary's capital balance at the end of 2010?

A)$100,000.
B)$117,000.
C)$119,000.
D)$129,000.
E)$153,000.

Question 20

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was Nolan's total share of net income for 2011?

A)$34,420.
B)$75,540.
C)$65,540.
D)$70,040.
E)$61,420.

Question 21

A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.



-What was the balance in Thurman's Capital account at the end of the first year?

A)$120,900.
B)$118,300.
C)$126,100.
D)$80,600.
E)$111,500.

Question 22

A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.



-What was Young's total share of net loss for the first year?

A)$3,900 loss.
B)$11,700 loss.
C)$10,400 loss.
D)$24,700 loss.
E)$9,100 loss.

Question 23

A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.



-What was Thurman's total share of net loss for the first year?

A)$3,900 loss.
B)$11,700 loss.
C)$10,400 loss.
D)$24,700 loss.
E)$9,100 loss.

Question 24

A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.



-What was Thurman's total share of net income for the second year?

A)$17,160 income.
B)$4,160 income.
C)$19,760 income.
D)$17,290 income.
E)$28,080 income.

Question 25

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was the total capital balance for the partnership at December 31,2011?

A)$852,000
B)$780,000
C)$708,000
D)$744,000
E)$594,000

Question 26

A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.



-What was the balance in Young's Capital account at the end of the second year?

A)$133,380.
B)$84,760.
C)$105,690.
D)$132,860.
E)$71,760.

Question 27

A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.



-What was Young's total share of net income for the second year?

A)$17,160 income.
B)$4,160 income.
C)$19,760 income.
D)$17,290 income.
E)$28,080 income.

Question 28

A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.



-What was the balance in Eaton's Capital account at the end of the second year?

A)$133,380.
B)$84,760.
C)$105,690.
D)$132,860.
E)$71,760.

Question 29

A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.



-What was Eaton's total share of net income for the second year?

A)$17,160 income.
B)$4,160 income.
C)$19,760 income.
D)$17,290 income.
E)$28,080 income.

Question 30

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was the amount of interest attributed to Cleary for 2012?

A)$15,142
B)$13,942
C)$12,942
D)$14,142
E)$10,000

Question 31

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

A)The partnership itself pays no income taxes.
B)It is easy to form a partnership.
C)Any partner can be held personally liable for all debts of the business.
D)A partnership requires written Articles of Partnership.
E)Each partner has the power to obligate the partnership for liabilities.

Question 32

A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.



-What was the balance in Eaton's Capital account at the end of the first year?

A)$120,900.
B)$118,300.
C)$126,100.
D)$80,600.
E)$111,500.

Question 33

A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.



-What was Eaton's total share of net loss for the first year?

A)$3,900 loss.
B)$11,700 loss.
C)$10,400 loss.
D)$24,700 loss.
E)$9,100 loss.

Question 34

A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.



-What was the balance in Thurman's Capital account at the end of the second year?

A)$133,380.
B)$84,760.
C)$105,690.
D)$132,860.
E)$71,760.

Question 35

Jerry,a partner in the JSK partnership,begins the year on January 1,2011 with a capital balance of $20,000.The JSK partnership agreement states that Jerry receives 6% interest on this weighted average capital balance.
- On March 1,2011,when the partnership tax return for 2010 was completed,Jerry's capital account was credited for his share of 2010 profit of $120,000.
- Jerry withdrew this amount quarterly,beginning April 1.
- On September 1,Jerry's capital account was credited with a special bonus of $60,000 for business he brought to the partnership.
What amount of interest will be attributed to Jerry for year 2011 that will go toward his profit distribution for the year? (Use a 360-day year for calculations. )

A)$5,250
B)$6,000
C)$6,400
D)$7,000
E)$7,200

Question 36

Jell and Dell were partners with capital balances of $600 and $800 and an income sharing ratio of 2:3.They admitted Zell to a 30% interest in the partnership,and the total amount of goodwill credited to the original partners was $700.What amount did Zell contribute to the business?

A)$900.
B)$560.
C)$600.
D)$590.
E)$630.

Question 37

A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.



-What was the balance in Young's Capital account at the end of the first year?

A)$120,900.
B)$118,300.
C)$126,100.
D)$80,600.
E)$111,500.

Question 38

Partnerships have alternative legal forms including all of the following except:

A)General Partnership.
B)Limited Partnership.
C)Subchapter S Partnership.
D)Limited Liability Partnership.
E)Limited Liability Company.

Question 39

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.

-What was Cleary's capital account balance at the end of 2011?

A)$163,420.
B)$151,420.
C)$139,420.
D)$100,000.
E)$142,000.

Question 40

Which of the following type of organization is classified as a partnership,or similar to a partnership,for tax purposes?
(I. )Limited Liability Company
(II) )Limited Liability Partnership
(III. )Subchapter S Corporation

A)II only.
B)II and III.
C)I and II.
D)I and III.
E)I,II,and III.

Question 41

Withdrawals from the partnership capital accounts are typically not used

A)to reward partners for work performed in the business.
B)to reduce the partners' capital account balances at the end of an accounting period.
C)to record interest earned on a partner's capital balance.
D)to reduce the basic investment that has been made in the business.
E)to record the partnership's payment of a partner's personal expense such as income tax.

Question 42

The capital account balances for Donald & Hanes LLP on January 1, 2011, were as follows: $\begin{array} { | l | r | } \hline \text { Donald, capital } & \$ 200,000 \\\hline \text { Hanes, capital } & 100,000 \\\hline\end{array}$ Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to admit May to the partnership with a 35% interest in partnership capital and net income. May invested $100,000 cash, and no goodwill was recognized.

-What is the balance of Donald's capital account after the new partnership is created?

A)$84,000.
B)$100,000.
C)$140,000.
D)$176,000.
E)$200,000.

Question 43

The capital account balances for Donald & Hanes LLP on January 1, 2011, were as follows: $\begin{array} { | l | r | } \hline \text { Donald, capital } & \$ 200,000 \\\hline \text { Hanes, capital } & 100,000 \\\hline\end{array}$ Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to admit May to the partnership with a 35% interest in partnership capital and net income. May invested $100,000 cash, and no goodwill was recognized.

-What is the balance of May's capital account after the new partnership is created?

A)$84,000.
B)$100,000.
C)$140,000.
D)$176,000.
E)$200,000.

Question 44

The appropriate format of the December 31,2010 closing entry for John & Hope Limited Liability Partnership,whose two partners had withdrawn their salaries from the partnership during the year is: $\begin{array}{|l|l|r|r|}\hline \text { A) } & \text { John, Drawing } & \mathrm{XXX} & \\\hline & \text { Hope, Drawing } & \mathrm{XXX} & \\\hline & \text { Salaries Payable } & & \mathrm{XXX} \\\hline \text { B) } & \text { Salaries Expense } & \mathrm{XXX} & \\\hline & \text { John, Drawing } & & \mathrm{XXX} \\\hline & \text { Hope, Drawing } & & \mathrm{XXX} \\\hline \text { C) } & \text { John, Capital } & \mathrm{XXX} & \\\hline & \text { Hope, Capital } & \mathrm{XXX} & \\\hline & \text { Salaries Payable } & & \mathrm{XXX} \\\hline \text { D) } & \text { John, Capital } & \text { XXX } & \\\hline & \text { Hope, Capital } & \text { XXX } & \\\hline & \text { John, Drawing } & & \text { XXX } \\\hline & \text { Hope, Drawing } & & \text { XXX } \\\hline\end{array}$

A)A Above.
B)B Above.
C)C Above.
D)D Above.

Question 45

Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and $60,000, respectively. The partners share profits and losses 20%, 40%, and 40% respectively.

-Roberts retires and is paid $160,000 based on an independent appraisal of the business.If the goodwill method is used,what is the capital balance of Peter?

A)$20,000.
B)$60,000.
C)$110,000.
D)$120,000.
E)$230,000.

Question 46

What is the total partnership capital after Roberts retires receiving $160,000 and using the goodwill method?

A)$290,000.
B)$176,000.
C)$80,000.
D)$120,000.
E)$230,000.

Question 47

Which of the following statements is correct regarding the admission of a new partner?

A)A new partner must purchase a partnership interest directly from the business.
B)The right of co-ownership in the business property can be transferred to a new partner without the consent of other existing partners.
C)The right to participate in management of the business can be conveyed without the consent of other existing partners.
D)The right to share in profits and losses can be sold to a new partner without the consent of other existing partners.
E)A new partner always pays book value.

Question 48

The capital account balances for Donald & Hanes LLP on January 1, 2011, were as follows: $\begin{array} { | l | r | } \hline \text { Donald, capital } & \$ 200,000 \\\hline \text { Hanes, capital } & 100,000 \\\hline\end{array}$ Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to admit May to the partnership with a 35% interest in partnership capital and net income. May invested $100,000 cash, and no goodwill was recognized.

-What is the balance of Hane's capital account after the new partnership is created?

A)$84,000.
B)$100,000.
C)$140,000.
D)$176,000.
E)$200,000.

Question 49

The capital account balances for Donald & Hanes LLP on January 1, 2011, were as follows: $\begin{array} { | l | r | } \hline \text { Donald, capital } & \$ 200,000 \\\hline \text { Hanes, capital } & 100,000 \\\hline\end{array}$ Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to admit May to the partnership with a 35% interest in partnership capital and net income. May invested $100,000 cash, and no goodwill was recognized.

-What is the new total balance of the partnership accounts?

A)$84,000.
B)$140,000.
C)$176,000.
D)$200,000.
E)$400,000.

Question 50

The partnership contract for Hanes and Jones LLP provides that Hanes is to receive a bonus of 20% of net income (after the bonus)and that the remaining net income is to be divided equally.If the partnership income before the bonus for the year is $57,600,Hanes' share of this pre-bonus income is:

A)$28,800.
B)$33,600.
C)$34,560.
D)$35,520.
E)$38,400.

Question 51

P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest.

-If C contributes $40,000 to the partnership and the goodwill method is used,what amount will be debited for goodwill?

A)$15,000
B)$20,000
C)$25,000
D)$28,000
E)$60,000

Question 52

When Danny withdrew from John,Daniel,Harry,and Danny,LLP,he was paid $80,000,although his capital account balance was only $60,000.The four partners shared net income and losses equally.The journal entry to record the effect on John's capital due to Danny's withdrawal would include :

A)$6,667 debit to John,Capital.
B)$6,667 credit to John,Capital.
C)$20,000 debit to John,Capital.
D)$5,000 debit to John,Capital.
E)$5,000 credit to John,Capital.

Question 53

P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest.

-C contributes $38,000 to the partnership and the bonus method is used.What amount will be credited for C's beginning capital balance?

A)$20,000
B)$25,000
C)$27,600
D)$32,600
E)$38,000

Question 54

The partners of Apple,Bere,and Carroll LLP share net income and losses in a 5:3:2 ratio,respectively.The capital account balances on January 1,2011,were as follows: $\begin{array} { | l | r | } \hline \text { Apple, capital } & \$ 25,000 \\\hline \text { Bere, capital } & 75,000 \\\hline \text { Carroll, capital } & 50,000 \\\hline \text { Total partners' capital } & \$ 150,000 \\\hline\end{array}$ The carrying amounts of the assets and liabilities of the partnership are the same as their current fair values.Dorr will be admitted to the partnership with a 20% capital interest and a 20% share of net income and losses in exchange for a cash investment.The amount of cash that Dorr should invest in the partnership is:

A)$25,000.
B)$30,000.
C)$37,500.
D)$75,000.
E)$90,000.

Question 55

Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000 respectively. The partners share profits and losses 20%, 40%, and 40% respectively.



-Anne retires and is paid $80,000 based on the terms of the original partnership agreement.If the bonus method is used,what is the capital of the remaining partners?

A)Donald,$40,000;Todd,$30,000
B)Donald,$30,000;Todd,$10,000
C)Donald,$50,000;Todd,$50,000
D)Donald,$24,000;Todd,$18,000

Question 56

Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and $60,000, respectively. The partners share profits and losses 20%, 40%, and 40% respectively.

-Roberts retires and is paid $160,000 based on an independent appraisal of the business.If the goodwill method is used,what is the capital balance of Dana?

A)$20,000.
B)$60,000.
C)$110,000.
D)$120,000.
E)$230,000.

Question 57

P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest.

-If C is to contribute an amount equal to his book value share of the new partnership,how much should C contribute?

A)$22,000
B)$20,000
C)$25,000
D)$18,000
E)$10,000

Question 58

Max,Jones and Waters shared profits and losses 20%,40%,and 40% respectively and their partnership capital balance is $10,000,$30,000 and $50,000 respectively.Max has decided to withdraw from the partnership.An appraisal of the business and its property estimates the fair value to be $200,000.Land with a book value of $30,000 has a fair value of $45,000.Max has agreed to receive $20,000 in exchange for her partnership interest after revaluation.At what amount should land be recorded on the partnership books?

A)$20,000.
B)$30,000.
C)$45,000.
D)$50,000.
E)$200,000.

Question 59

Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000 respectively. The partners share profits and losses 20%, 40%, and 40% respectively.



-Anne retires and is paid $80,000 based on an independent appraisal of the business.If the goodwill method is used,what is the capital of the remaining partners?

A)Donald,$55,000;Todd,$60,000
B)Donald,$40,000;Todd,$30,000
C)Donald,$65,000;Todd,$55,000
D)Donald,$15,000;Todd,$30,000

Question 60

Which of the following could be used as a basis to allocate profits among partners who are active in the management of the partnership?
1)Allocation of salaries.
2)The number of years with the partnership.
3)The amount of time each partner works.
4)The average capital invested.

A)1 and 2.
B)1 and 3.
C)1,2,and 4.
D)1,3,and 4.
E)1,2,3,and 4.

Question 61

Under what circumstances does a partner's balance in his or her capital account have practical consequences for the partner?

Question 62

What is the dissolution of a partnership?

Question 63

Norr and Caylor established a partnership on January 1, 2010. Norr invested cash of $100,000 and Caylor invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000. For both partners, the beginning capital balance was to equal the initial investment. Norr and Caylor agreed to the following procedure for sharing profits and losses:
- 12% interest on the yearly beginning capital balance
- $10 per hour of work that can be billed to the partnership's clients
- the remainder divided in a 3:2 ratio
The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month.
For 2010, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400 billable hours. In 2011, the partnership's income was $24,000, and Norr and Caylor worked 800 and 1,200 billable hours respectively. Each partner withdrew $1,000 per month throughout 2010 and 2011.


-Determine the balance in both capital accounts at the end of 2011 to the nearest dollar.

Question 64

For what events or conditions should the Articles of Partnership make provision?

Question 65

Jipsom and Klark were partners with capital account balances of $80,000 and $100,000,respectively.Looney directly paid $32,000 to Jipsom and $40,000 to Klark for 30% of their interests in the partnership.Jipsom and Klark shared income in the ratio of 2:3.They believed that revaluation of the partnership was appropriate when a new partner was admitted.
Required:
Prepare the journal entries to record the admission of Looney to the partnership.

Question 66

Reed,Sharp,and Tucker were partners with capital account balances of $80,000,$100,000,and $70,000,respectively.They agreed to admit Upton to the partnership.Upton purchased 30% of each partner's interest,with payments directly to Reed,Sharp,and Tucker of $32,000,$40,000,and $28,000,respectively.Before the admission of Upton,the profit and loss sharing ratio was 2:3:2.The partners agreed to use the bonus method to account for the admission of Upton to the partnership.
Required:
Prepare the journal entry to record the admission of Upton to the partnership.

Question 67

Norr and Caylor established a partnership on January 1, 2010. Norr invested cash of $100,000 and Caylor invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000. For both partners, the beginning capital balance was to equal the initial investment. Norr and Caylor agreed to the following procedure for sharing profits and losses:
- 12% interest on the yearly beginning capital balance
- $10 per hour of work that can be billed to the partnership's clients
- the remainder divided in a 3:2 ratio
The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month.
For 2010, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400 billable hours. In 2011, the partnership's income was $24,000, and Norr and Caylor worked 800 and 1,200 billable hours respectively. Each partner withdrew $1,000 per month throughout 2010 and 2011.


-Determine the balance in both capital accounts at the end of 2010.

Question 68

Norr and Caylor established a partnership on January 1, 2010. Norr invested cash of $100,000 and Caylor invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000. For both partners, the beginning capital balance was to equal the initial investment. Norr and Caylor agreed to the following procedure for sharing profits and losses:
- 12% interest on the yearly beginning capital balance
- $10 per hour of work that can be billed to the partnership's clients
- the remainder divided in a 3:2 ratio
The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month.
For 2010, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400 billable hours. In 2011, the partnership's income was $24,000, and Norr and Caylor worked 800 and 1,200 billable hours respectively. Each partner withdrew $1,000 per month throughout 2010 and 2011.


-Determine the amount of net income allocated to each partner for 2010.

Question 69

How is accounting for a partnership different from accounting for a corporation?

Question 70

What events cause the dissolution of a partnership?

Question 71

What theoretical argument could be made against the recognition of goodwill when there is a change in the ownership of a partnership?

Question 72

The ABCD Partnership has the following balance sheet at January 1,2010,prior to the admission of new partner,Eden.
$$\begin{array} { l r l r } \text { Cash and current assets } & \$ 39,000 & \text { Liabilities } & \$ 52,000 \\\text { Land } & 234,000 & \text { Adams, capital } & 26,000 \\\text { Building and equipment } & 130,000 & \text { Barnes, capital } & 52,000 \\& & \text { Cordas, capital } & 117,000 \\& \underline{\quad\quad\quad\quad} & \text { Davis, capital } & \underline{156,000 }\\ \text { Total } &\underline {\$ 403,000 }& \text { Total } & \underline{\$ 403,000} \\\end{array}$$

-Eden acquired a 20% interest in the partnership by contributing a total of $71,500 directly to the other four partners.No goodwill is to be recorded.Profits and losses have previously been split according to the following percentages: Adams,15%,Barnes,35%,Cordas,30%,and Davis,20%.After Eden made his investment,what were the individual capital balances?

Question 73

The ABCD Partnership has the following balance sheet at January 1,2010,prior to the admission of new partner,Eden.
$$\begin{array} { l r l r } \text { Cash and current assets } & \$ 39,000 & \text { Liabilities } & \$ 52,000 \\\text { Land } & 234,000 & \text { Adams, capital } & 26,000 \\\text { Building and equipment } & 130,000 & \text { Barnes, capital } & 52,000 \\& & \text { Cordas, capital } & 117,000 \\& \underline{\quad\quad\quad\quad} & \text { Davis, capital } & \underline{156,000 }\\ \text { Total } &\underline {\$ 403,000 }& \text { Total } & \underline{\$ 403,000} \\\end{array}$$

-Eden acquired a 20% interest in the partnership by contributing a total of $71,500 directly to the other four partners.Goodwill is to be recorded.Profits and losses have previously been split according to the following percentages: Adams,15%,Barnes,35%,Cordas,30%,and Davis,20%.After Eden made his investment,what were the individual capital balances?

Question 74

The ABCD Partnership has the following balance sheet at January 1,2010,prior to the admission of new partner,Eden.
$$\begin{array} { l r l r } \text { Cash and current assets } & \$ 39,000 & \text { Liabilities } & \$ 52,000 \\\text { Land } & 234,000 & \text { Adams, capital } & 26,000 \\\text { Building and equipment } & 130,000 & \text { Barnes, capital } & 52,000 \\& & \text { Cordas, capital } & 117,000 \\& \underline{\quad\quad\quad\quad} & \text { Davis, capital } & \underline{156,000 }\\ \text { Total } &\underline {\$ 403,000 }& \text { Total } & \underline{\$ 403,000} \\\end{array}$$

-Eden contributed $124,000 in cash to the business to receive a 20% interest in the partnership.Goodwill was to be recorded.The four original partners shared all profits and losses equally.After Eden made his investment,what were the individual capital balances?

Question 75

By what methods can a person gain admittance to a partnership?

Question 76

Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000 respectively. The partners share profits and losses 20%, 40%, and 40% respectively.



-What is the total partnership capital after Anne retires receiving $80,000 and using the bonus method?

A)$70,000.
B)$40,000.
C)$60,000.
D)$80,000.
E)$42,000.

Question 77

Why are the terms of the Articles of Partnership important to partners?

Question 78

Brown and Green are forming a business as partners.If they do not create a formal written partnership agreement,what risks are they exposing themselves to?

Question 79

Norr and Caylor established a partnership on January 1, 2010. Norr invested cash of $100,000 and Caylor invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000. For both partners, the beginning capital balance was to equal the initial investment. Norr and Caylor agreed to the following procedure for sharing profits and losses:
- 12% interest on the yearly beginning capital balance
- $10 per hour of work that can be billed to the partnership's clients
- the remainder divided in a 3:2 ratio
The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month.
For 2010, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400 billable hours. In 2011, the partnership's income was $24,000, and Norr and Caylor worked 800 and 1,200 billable hours respectively. Each partner withdrew $1,000 per month throughout 2010 and 2011.


-Determine the amount of net income allocated to each partner for 2011.Round all calculations to the nearest whole dollar.

Question 80

The ABCD Partnership has the following balance sheet at January 1,2010,prior to the admission of new partner,Eden.
$$\begin{array} { l r l r } \text { Cash and current assets } & \$ 39,000 & \text { Liabilities } & \$ 52,000 \\\text { Land } & 234,000 & \text { Adams, capital } & 26,000 \\\text { Building and equipment } & 130,000 & \text { Barnes, capital } & 52,000 \\& & \text { Cordas, capital } & 117,000 \\& \underline{\quad\quad\quad\quad} & \text { Davis, capital } & \underline{156,000 }\\ \text { Total } &\underline {\$ 403,000 }& \text { Total } & \underline{\$ 403,000} \\\end{array}$$

-Eden contributes $49,000 into the partnership for a 25% interest.The four original partners share profits and losses equally.Using the bonus method,determine the balances for each of the five partners after Eden joins the partnership.