Deck 12: Accounting for Partnerships

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Question
In a limited partnership the general partner has unlimited liability.
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Question
If partners devote their time and services to their partnership, their salaries are expenses on the income statement.
Question
Accounting procedures for all items are the same for both C corporations and S corporations in all aspects.
Question
A partnership is an unincorporated association of two or more people to pursue a business for profit as co-owners.
Question
Limited liability partnerships are designed to protect innocent partners from malpractice or negligence claims resulting from the acts of another partner.
Question
The equity section of the balance sheet of a partnership can report the separate capital account balances of each partner.
Question
A partnership cannot use salary allowances or interest allowances to allocate income and losses to the partners because these items are not reported on the partnership income statement.
Question
Partner return on equity can be used by each partner to help decide whether additional investment or withdrawal of resources is best for that partner.
Question
Benson is a partner in B&D Company. Benson's share of the partnership income is $18,600 and her average partnership equity is $155,000. Her partner return on equity equals 8.33.
Question
A partnership has an unlimited life.
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Salary allowances are reported as salaries expense on a partnership income statement.
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Mutual agency means each partner can commit or bind the partnership to any contract within the scope of the partnership business.
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Partners can invest both assets and liabilities into a partnership.
Question
The withdrawals account of each partner is closed to retained earnings at the end of the accounting period.
Question
In closing the accounts at the end of a period, the partners' capital accounts are credited for their share of the partnership loss or debited for their share of the partnership net income.
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The statement of changes in partners' equity shows the beginning balance in retained earnings, plus investments, less withdrawals, the income or loss and the ending balance in retained earnings.
Question
In the absence of a partnership agreement, the law says that income of a partnership will be shared equally by the partners.
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When partners invest in a partnership, their capital accounts are credited for the amount invested.
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Partners' withdrawals are credited to their separate withdrawals accounts.
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Partners in a partnership are taxed on the amounts they withdraw from the partnership, not the partnership income.
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When a partner leaves a partnership, the present partnership ends.
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If a partner is unable to cover a deficiency and the other partners absorb the deficiency, then the partner with the deficiency is thus relieved of all liability.
Question
Assets invested by a partner into a partnership remain the property of the individual partner.
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A capital deficiency exists when all partners have a credit balance in their capital accounts.
Question
Disadvantages of a partnership include:

A) Limited life.
B) Mutual agency.
C) Unlimited liability.
D) Co-ownership of property.
E) All of these.
Question
To buy into an existing partnership, the new partner must contribute cash to the partnership.
Question
An unincorporated association of two or more persons to carry on a business for profit as co-owners is a:

A) Partnership.
B) Proprietorship.
C) Contractual company.
D) Mutual agency.
E) Voluntary organization.
Question
A partnership that has two classes of partners, general and limited, where the limited partners have no personal liability beyond the amounts they invest in the partnership, and no active role in the partnership, except as specified in the partnership agreement is a:

A) Mutual agency partnership.
B) Limited partnership.
C) Limited liability partnership.
D) General partnership.
E) Limited liability company.
Question
Admitting a partner by accepting assets is a personal transaction between one or more current partners and the new partner.
Question
If the partners agree on a formula to share income and say nothing about losses, then the losses are shared equally.
Question
A partnership designed to protect innocent partners from malpractice or negligence claims resulting from acts of another partner is a:

A) Partnership.
B) Limited partnership.
C) Limited liability partnership.
D) General partnership.
E) Limited liability company.
Question
When a partner leaves a partnership, the withdrawing partner is entitled to a bonus if the recorded equity is overstated.
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If at the time of partnership liquidation, a partner has a $5,000 capital deficiency and pays the partnership $5,000 out of personal assets to cover the deficiency, then that partner is entitled to share in the final distribution of cash.
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When a partnership is liquidated, its business is ended.
Question
Mutual agency means

A) Creditors can apply their claims to partners' personal assets.
B) Partners are taxed on partnership withdrawals.
C) All partners must agree before the partnership can act.
D) The partnership has a limited life.
E) A partner can commit or bind the partnership in any contract within the scope of the partnership business.
Question
Assume that the S & B partnership agreement gave Steely 60% and Breck 40% of partnership income and losses. The partnership lost $27,000 in the current period. This implies that Steely's share of the loss equals $16,200, and Breck's share equals $10,800.
Question
A partnership agreement:

A) Is not binding unless it is in writing.
B) Is the same as a limited liability partnership.
C) Is binding even if it is not in writing.
D) Does not generally address the issue of the rights and duties of the partners.
E) Is also called the articles of incorporation.
Question
A capital deficiency can arise from liquidation losses, excessive withdrawals before liquidation, or recurring losses in prior periods.
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When the current value of a partnership is greater than the recorded amounts of equity, the current partners usually require any new partner to pay a bonus for the privilege of joining.
Question
When a partner leaves a partnership, the present partnership ends, but the business can still continue to operate.
Question
Shelby and Mortonson formed a partnership with capital contributions of $300,000 and $400,000, respectively. Their partnership agreement calls for Shelby to receive a $60,000 per year salary. Also, each partner is to receive an interest allowance equal to 10% of a partner's beginning capital investments. The remaining income or loss is to be divided equally. If the net income for the current year is $135,000, then Shelby and Mortonson's respective shares are:

A) $67,500; $67,500.
B) $92,500; $42,500.
C) $57,857; $77,143.
D) $90,000; $40,000.
E) $35,000; $100,000.
Question
The withdrawals account of each partner is:

A) Closed to that partner's capital account with a credit.
B) Closed to that partner's capital account with a debit.
C) A permanent account that is not closed.
D) Credited with that partner's share of net income.
E) Debited with that partner's share of net loss.
Question
A partnership in which all partners have mutual agency and unlimited liability is called:

A) Limited partnership.
B) Limited liability partnership.
C) General partnership.
D) S corporation.
E) Limited liability company.
Question
Rice, Hepburn, and DiMarco formed a partnership with Rice contributing $60,000, Hepburn contributing $50,000 and DiMarco contributing $40,000. Their partnership agreement called for the income (loss) division to be based on the ratio of capital investments. If the partnership had income of $75,000 for its first year of operation, what amount of income (rounded to the nearest thousand) would be credited to DiMarco's capital account?

A) $20,000.
B) $25,000.
C) $30,000.
D) $40,000.
E) $75,000.
Question
Trump and Hawthorne have decided to form a partnership. Trump is going to contribute a depreciable asset to the partnership as his equity contribution to the partnership. The following information regarding the asset to be contributed by Trump is available: *will be assumed by the partnership
Based on this information, Trump's beginning equity balance in the partnership will be:

A) $76,000
B) $36,000
C) $18,000
D) $27,000
E) $45,000
Question
Renee Jackson is a partner in Sports Promoters. Her beginning partnership capital balance for the current year is $55,000, and her ending partnership capital balance for the current year is $62,000. Her share of this year's partnership income was $5,250. What is her partner return on equity?

A) 8.47%
B) 8.97%
C) 9.54%
D) 10.47%
E) 10.60%
Question
The following information is available regarding John Smith's capital account in Technology Consulting Group, a general partnership, for a recent year: What is Smith's partner return on equity during the year in question?

A) 36.6%
B) 34.7%
C) 10.8%
D) 11.4%
E) 55.7%
Question
Mutual agency implies that each partner in a partnership is a fully authorized agent of the partnership. Which of the following statements is correct regarding the authority of a partner to bind the partnership in dealings with third parties?

A) The partner's authority must be derived from the partnership agreement.
B) The partner's authority may be effectively limited by a formal resolution of the other partners, even if third parties are not aware of that limitation.
C) Only a partner with a majority interest in a partnership has the authority to represent the partnership to third parties.
D) A partner has authority to deal with third parties on the behalf of the other partners only if he has written permission to do so.
E) A partner may be able to legally bind the partnership to actions even if the other partners are unaware of his actions.
Question
In the absence of a partnership agreement, the law says that income (and loss) should be allocated based on:

A) A fractional basis.
B) The ratio of capital investments.
C) Salary allowances.
D) Equal shares.
E) Interest allowances.
Question
In a partnership agreement, if the partners agreed to an interest allowance of 10% annually on each partner's investment, the interest allowance:

A) Is ignored when earnings are not sufficient to pay interest.
B) Can make up for unequal capital contributions.
C) Is an expense of the business.
D) Must be paid because the partnership contract has unlimited life.
E) Legally becomes a liability of the general partner.
Question
Partnership accounting:

A) Uses a capital account for each partner.
B) Uses a withdrawals account for each partner.
C) Allocates net income to each partner according to the partnership agreement.
D) Allocates net loss to each partner according to the partnership agreement.
E) All of these.
Question
Collins and Farina are forming a partnership. Collins is investing a building that has a market value of $80,000. However, the building carries a $56,000 mortgage that will be assumed by the partnership. Farina is investing $20,000 cash. The balance of Collins' Capital account will be:

A) $80,000.
B) $24,000.
C) $56,000.
D) $44,000.
E) $60,000.
Question
Partners' withdrawals of assets are:

A) Credited to their withdrawals accounts.
B) Debited to their withdrawals accounts.
C) Credited to their retained earnings.
D) Debited to their retained earnings.
E) Debited to their asset accounts.
Question
Which of the following statements is ?

A) Partners are employees of the partnership.
B) Salaries to partners are expenses on the partnership income statement.
C) Salary allowances usually reflect the relative value of services provided by partners.
D) Salary allowances are expenses.
E) Interest allowances are expenses.
Question
Nguyen invested $100,000 and Hansen invested $200,000 in a partnership. They agreed to share incomes and losses by allowing a $60,000 per year salary allowance to Nguyen and a $40,000 per year salary allowance to Hansen, plus an interest allowance on the partners' beginning-year capital investments at 10%, with the balance to be shared equally. Under this agreement, the shares of the partners when the partnership earns $105,000 in income are:

A) $52,500 to Nguyen; $52,500 to Hansen.
B) $35,000 to Nguyen; $70,000 to Hansen.
C) $57,500 to Nguyen; $47,500 to Hansen.
D) $42,500 to Nguyen; $62,500 to Hansen.
E) $70,000 to Nguyen; $60,000 to Hansen.
Question
Web Services is organized as a limited partnership, with David White as one of its partners. David's capital account began the year with a balance of $45,000. During the year, David's share of the partnership income was $7,500, and David received $4,000 in distributions from the partnership. What is David's partner return on equity?

A) 7.8%
B) 8.9%
C) 15.4%
D) 16.0%
E) 16.7%
Question
B. Tanner contributed $14,000 in cash plus office equipment valued at $7,000 to the JT Partnership. The journal entry to record the transaction for the partnership is:

A) Debit Cash $14,000; debit Office Equipment $7,000; credit B. Tanner, Capital $21,000.
B) Debit Cash $14,000; debit Office Equipment $7,000; credit JT Partnership, Capital $21,000.
C) Debit JT Partnership $21,000; credit B. Tanner, Capital $21,000.
D) Debit B. Tanner, Capital $21,000; credit JT Partnership, Capital $21,000.
E) Debit Cash $14,000; debit Office Equipment $7,000; credit Share Capital-Ordinary $21,000.
Question
David and Jeannie formed This & That as a limited liability company. Unless the member owners elect to be treated otherwise, the Internal Revenue Service will tax the LLC as:

A) An S corporation.
B) A C corporation.
C) A non-taxable entity.
D) A joint venture.
E) A partnership.
Question
Partnership accounting:

A) Is the same as accounting for a sole proprietorship.
B) Is the same as accounting for a corporation.
C) Is the same as accounting for a sole proprietorship, except that separate capital and withdrawal accounts are kept for each partner.
D) Is the same as accounting for an S corporation.
E) Is the same as accounting for a corporation, except that retained earnings is used to keep track of partners' withdrawals.
Question
Chen and Wright are forming a partnership. Chen will invest a building that currently is being used by another business owned by Chen. The building has a market value of $90,000. Also, the partnership will assume responsibility for a $30,000 note secured by a mortgage on that building. Wright will invest $50,000 cash. For the partnership, the amounts to be recorded for the building and for Chen's Capital account are:

A) Building, $90,000 and Chen, Capital, $90,000.
B) Building, $60,000 and Chen, Capital, $60,000.
C) Building, $60,000 and Chen, Capital, $50,000.
D) Building, $90,000 and Chen, Capital, $60,000.
E) Building, $60,000 and Chen, Capital, $90,000.
Question
Regina Harrison is a partner in Pressed for Time. An analysis of Regina Harrison's capital account indicates that during the most recent year, she withdrew $20,000 from the partnership. Her share of the partnership's net loss was $16,000 and she made an additional equity contribution of $10,000. Her capital account ended the year at $150,000. What was her capital balance at the beginning of the year?

A) $124,000
B) $144,000
C) $192,000
D) $176,000
E) $134,000
Question
Sam, Bart, and Lex are dissolving their partnership. Their partnership agreement allocates each partner 1/3 of all income and losses. The current period's ending capital account balances are Sam, $45,000; Bart, $37,000; and Lex, $(5,000). After all assets are sold and liabilities are paid, there is $77,000 in cash to be distributed. Lex is unable to pay the deficiency. The journal entry to record the distribution should be:

A) Debit Sam, Capital $25,667; debit Bart, Capital $25,667; debit Lex, Capital $25,666; credit Cash $77,000.
B) Debit Sam, Capital $42,500; debit Bart, Capital $34,500; credit Cash $77,000.
C) Debit Sam, Capital $45,000; debit Bart, Capital $37,000; credit Lex, Capital $5,000; credit Cash $77,000.
D) Debit Cash $77,000, debit Lex, Capital $5,000, credit Sam, Capital $45,000, credit Bart, Capital $37,000.
E) Debit Cash $77,000; credit Sam, Capital $25,667; credit Bart, Capital $25,667; credit Lex, Capital $25,666.
Question
A partner can withdraw from a partnership by:

A) Selling his/her interest to another person for cash.
B) Selling his/her interest to another person in exchange for assets.
C) Receiving cash from the partnership in the amount of his/her interest.
D) Receiving assets from the partnership in the amount of his/her interest.
E) All of these.
Question
Badger and Fox are forming a partnership. Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property. Fox invests $100,000 in cash and equipment that has a market value of $75,000. For the partnership, the amounts recorded for total assets and for total capital account are:

A) Total assets $525,000; total capital $400,000.
B) Total assets $400,000; total capital $400,000.
C) Total assets $650,000; total capital $650,000.
D) Total assets $400,000; total capital $525,000.
E) Total assets $525,000; total capital $525,000.
Question
A partnership recorded the following journal entry: This entry reflects:

A) Acceptance of a new partner who invests $70,000 and receives a $20,000 bonus.
B) Withdrawal of a partner who pays a $10,000 bonus to each of the other partners.
C) Addition of a partner who pays a bonus to each of the other partners.
D) Additional investment into the partnership by Tanner and Jackson.
E) Withdrawal of $10,000 each by Tanner and Jackson upon the admission of a new partner.
Question
When a partnership is liquidated:

A) Noncash assets are converted to cash.
B) Any gain or loss on liquidation is allocated to the partners' capital accounts using the income and loss sharing ratio.
C) Liabilities are paid or settled.
D) Any remaining cash is distributed to the partners based on their capital balances.
E) All of these.
Question
Smith, West, and Krug form a partnership. Smith contributes $180,000, West contributes $150,000, and Krug contributes $270,000. Their partnership agreement calls for the income or loss division to be based on the ratio of capital invested. If the partnership reports income of $175,000 for its first year, what amount of income is credited to Smith's capital account?

A) $43,750.
B) $78,750.
C) $52,500.
D) $58,333.
E) $60,000.
Question
Groh and Jackson are partners. Groh's capital balance in the partnership is $64,000, and Jackson's capital balance $61,000. Groh and Jackson have agreed to share equally in income or loss. Groh and Jackson agree to accept Block with a 25% interest. Block will invest $35,000 in the partnership. The bonus that is granted to Block equals:

A) $5,000.
B) $2,500.
C) $6,667.
D) $3,333.
E) $0, because Block must actually grant a bonus to Groh and Jackson.
Question
Badger and Fox are forming a partnership. Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property. Fox invests $100,000 in cash and equipment that has a market value of $75,000. For the partnership, the amounts recorded for the building and for Badger's Capital account are:

A) Building $350,000; Badger, Capital $350,000.
B) Building $225,000; Badger, Capital $225,000.
C) Building $225,000; Badger, Capital $125,000.
D) Building $350,000; Badger, Capital $225,000.
E) Building $350,000; Badger, Capital $300,000.
Question
Smith, West, and Krug form a partnership. Smith contributes $180,000, West contributes $150,000, and Krug contributes $270,000. Their partnership agreement calls for a 5% interest allowance on the partner's capital balances with the remaining income or loss to be allocated equally. If the partnership reports income of $174,000 for its first year, what amount of income is credited to West's capital account?

A) $58,000.
B) $57,000.
C) $61,500.
D) $55,500.
E) $48,000.
Question
The following information is available on Stewart Enterprises, a partnership, for the most recent fiscal year: There are three partners in Stewart Enterprises: Stewart, Tedder and Armstrong. At the end of the year, the partners' capital accounts were in the ratio of 2:1:2, respectively. Compute the ending capital balances of the three partners.

A) Stewart = $108,000; Tedder = $54,000; Armstrong = $108,000.
B) Stewart = $90,000; Tedder = $90,000; Armstrong = $90,000.
C) Stewart = $204,000; Tedder = $102,000; Armstrong = $204,000.
D) Stewart = $84,000; Tedder = $102,000; Armstrong = $84,000.
E) Stewart = $60,000; Tedder = $30,000; Armstrong = $60,000.
Question
Smith, West, and Krug form a partnership. Smith contributes $180,000, West contributes $150,000, and Krug contributes $270,000. Their partnership agreement calls for the income or loss division to be based on the ratio of capital invested. If the partnership reports income of $175,000 for its first year, what amount of income is credited to Krug's capital account?

A) $43,750.
B) $78,750.
C) $52,500.
D) $58,333.
E) $60,000.
Question
When a partner is added to a partnership:

A) The previous partnership ends.
B) The underlying business operations end.
C) The underlying business operations must close and then re-open.
D) The partnership must continue.
E) The partnership equity always increases.
Question
A capital deficiency means that:

A) The partnership has a loss.
B) The partnership has more liabilities than assets.
C) At least one partner has a debit balance in his/her capital account.
D) At least one partner has a credit balance in his/her capital account.
E) The partnership has been sold at a loss.
Question
Badger and Fox are forming a partnership. Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property. Fox invests $100,000 in cash and equipment that has a market value of $75,000. For the partnership, the amounts recorded for Badger's Capital account and for Fox's Capital account are:

A) Badger, Capital $350,000; Fox, Capital $175,000.
B) Badger, Capital $225,000; Fox, Capital $100,000.
C) Badger, Capital $225,000; Fox, Capital $75,000.
D) Badger, Capital $350,000; Fox, Capital $100,000.
E) Badger, Capital $225,000; Fox, Capital $175,000.
Question
Mack, Harris, and Huss are dissolving their partnership. Their partnership agreement allocates income and losses equally among the partners. The current period's ending capital account balances are Mack, $15,000, Harris, $15,000, Huss, $(2,000). After all the assets are sold and liabilities are paid, but before any contributions to cover any deficiencies, there is $28,000 in cash to be distributed. Huss pays $2,000 to cover the deficiency in his account. The general journal entry to record the final distribution would be:

A) Debit Mack, Capital $15,000; debit Harris, Capital $15,000; credit Cash $30,000.
B) Debit Mack, Capital $14,000; debit Harris, Capital $14,000; credit Cash $28,000.
C) Debit Mack, Capital $15,000; debit Harris, Capital $15,000; credit Huss, Capital $2,000; credit Cash $28,000.
D) Debit Cash $28,000; debit Huss, Capital $2,000; credit Mack, Capital $15,000; credit Harris, Capital $15,000.
E) Debit Mack, Capital $9,334; debit Harris, Capital $9,333; debit Huss, Capital $9,333; credit Cash $28,000.
Question
Groh and Jackson are partners. Groh's capital balance in the partnership is $64,000, and Jackson's capital balance $61,000. Groh and Jackson have agreed to share equally in income or loss. Groh and Jackson agree to accept Block with a 20% interest. Block will invest $35,000 in the partnership. The bonus that is granted to Groh and Jackson equals:

A) $1,500 each.
B) $1,875 each.
C) $3,750 each.
D) 1,920 to Groh; $1,830 to Jackson.
E) $0, because Groh and Jackson actually grant a bonus to Block.
Question
A bonus may be paid:

A) By a new partner when the current value of a partnership is greater than the recorded amounts of equity.
B) By a withdrawing partner to remaining partners if the recorded value of the equity is overstated.
C) To a new partner with exceptional talents.
D) By remaining partners to a withdrawing partner if the recorded equity is understated.
E) All of these.
Question
The partnership agreement for Smith Wesson & Davis, a general partnership, provided that profits be shared between the partners in the ratio of their financial contributions to the partnership. Smith contributed $100,000, Wesson contributed $60,000 and Davis contributed $20,000. In the partnership's first year of operation, it incurred a loss of $210,000. What amount of the partnership's loss, rounded to the nearest dollar, should be absorbed by Smith?

A) $70,000
B) $116,667
C) $23,333
D) $105,000
E) $52,500
Question
When a partner is unable to pay a capital deficiency:

A) The partner must take out a loan to cover the deficient balance.
B) The deficiency is absorbed by the remaining partners before distribution of cash.
C) The partnership ends before distribution of cash.
D) The deficient partner is relieved of the liability.
E) The remaining partners must wait for the deficiency to be paid before cash is distributed.
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Deck 12: Accounting for Partnerships
1
In a limited partnership the general partner has unlimited liability.
True
2
If partners devote their time and services to their partnership, their salaries are expenses on the income statement.
False
3
Accounting procedures for all items are the same for both C corporations and S corporations in all aspects.
False
4
A partnership is an unincorporated association of two or more people to pursue a business for profit as co-owners.
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5
Limited liability partnerships are designed to protect innocent partners from malpractice or negligence claims resulting from the acts of another partner.
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6
The equity section of the balance sheet of a partnership can report the separate capital account balances of each partner.
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7
A partnership cannot use salary allowances or interest allowances to allocate income and losses to the partners because these items are not reported on the partnership income statement.
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8
Partner return on equity can be used by each partner to help decide whether additional investment or withdrawal of resources is best for that partner.
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9
Benson is a partner in B&D Company. Benson's share of the partnership income is $18,600 and her average partnership equity is $155,000. Her partner return on equity equals 8.33.
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10
A partnership has an unlimited life.
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11
Salary allowances are reported as salaries expense on a partnership income statement.
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12
Mutual agency means each partner can commit or bind the partnership to any contract within the scope of the partnership business.
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13
Partners can invest both assets and liabilities into a partnership.
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14
The withdrawals account of each partner is closed to retained earnings at the end of the accounting period.
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15
In closing the accounts at the end of a period, the partners' capital accounts are credited for their share of the partnership loss or debited for their share of the partnership net income.
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16
The statement of changes in partners' equity shows the beginning balance in retained earnings, plus investments, less withdrawals, the income or loss and the ending balance in retained earnings.
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17
In the absence of a partnership agreement, the law says that income of a partnership will be shared equally by the partners.
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18
When partners invest in a partnership, their capital accounts are credited for the amount invested.
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19
Partners' withdrawals are credited to their separate withdrawals accounts.
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20
Partners in a partnership are taxed on the amounts they withdraw from the partnership, not the partnership income.
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21
When a partner leaves a partnership, the present partnership ends.
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22
If a partner is unable to cover a deficiency and the other partners absorb the deficiency, then the partner with the deficiency is thus relieved of all liability.
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23
Assets invested by a partner into a partnership remain the property of the individual partner.
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24
A capital deficiency exists when all partners have a credit balance in their capital accounts.
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25
Disadvantages of a partnership include:

A) Limited life.
B) Mutual agency.
C) Unlimited liability.
D) Co-ownership of property.
E) All of these.
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26
To buy into an existing partnership, the new partner must contribute cash to the partnership.
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27
An unincorporated association of two or more persons to carry on a business for profit as co-owners is a:

A) Partnership.
B) Proprietorship.
C) Contractual company.
D) Mutual agency.
E) Voluntary organization.
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28
A partnership that has two classes of partners, general and limited, where the limited partners have no personal liability beyond the amounts they invest in the partnership, and no active role in the partnership, except as specified in the partnership agreement is a:

A) Mutual agency partnership.
B) Limited partnership.
C) Limited liability partnership.
D) General partnership.
E) Limited liability company.
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29
Admitting a partner by accepting assets is a personal transaction between one or more current partners and the new partner.
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30
If the partners agree on a formula to share income and say nothing about losses, then the losses are shared equally.
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31
A partnership designed to protect innocent partners from malpractice or negligence claims resulting from acts of another partner is a:

A) Partnership.
B) Limited partnership.
C) Limited liability partnership.
D) General partnership.
E) Limited liability company.
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32
When a partner leaves a partnership, the withdrawing partner is entitled to a bonus if the recorded equity is overstated.
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33
If at the time of partnership liquidation, a partner has a $5,000 capital deficiency and pays the partnership $5,000 out of personal assets to cover the deficiency, then that partner is entitled to share in the final distribution of cash.
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34
When a partnership is liquidated, its business is ended.
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35
Mutual agency means

A) Creditors can apply their claims to partners' personal assets.
B) Partners are taxed on partnership withdrawals.
C) All partners must agree before the partnership can act.
D) The partnership has a limited life.
E) A partner can commit or bind the partnership in any contract within the scope of the partnership business.
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36
Assume that the S & B partnership agreement gave Steely 60% and Breck 40% of partnership income and losses. The partnership lost $27,000 in the current period. This implies that Steely's share of the loss equals $16,200, and Breck's share equals $10,800.
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37
A partnership agreement:

A) Is not binding unless it is in writing.
B) Is the same as a limited liability partnership.
C) Is binding even if it is not in writing.
D) Does not generally address the issue of the rights and duties of the partners.
E) Is also called the articles of incorporation.
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38
A capital deficiency can arise from liquidation losses, excessive withdrawals before liquidation, or recurring losses in prior periods.
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39
When the current value of a partnership is greater than the recorded amounts of equity, the current partners usually require any new partner to pay a bonus for the privilege of joining.
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40
When a partner leaves a partnership, the present partnership ends, but the business can still continue to operate.
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41
Shelby and Mortonson formed a partnership with capital contributions of $300,000 and $400,000, respectively. Their partnership agreement calls for Shelby to receive a $60,000 per year salary. Also, each partner is to receive an interest allowance equal to 10% of a partner's beginning capital investments. The remaining income or loss is to be divided equally. If the net income for the current year is $135,000, then Shelby and Mortonson's respective shares are:

A) $67,500; $67,500.
B) $92,500; $42,500.
C) $57,857; $77,143.
D) $90,000; $40,000.
E) $35,000; $100,000.
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42
The withdrawals account of each partner is:

A) Closed to that partner's capital account with a credit.
B) Closed to that partner's capital account with a debit.
C) A permanent account that is not closed.
D) Credited with that partner's share of net income.
E) Debited with that partner's share of net loss.
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43
A partnership in which all partners have mutual agency and unlimited liability is called:

A) Limited partnership.
B) Limited liability partnership.
C) General partnership.
D) S corporation.
E) Limited liability company.
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44
Rice, Hepburn, and DiMarco formed a partnership with Rice contributing $60,000, Hepburn contributing $50,000 and DiMarco contributing $40,000. Their partnership agreement called for the income (loss) division to be based on the ratio of capital investments. If the partnership had income of $75,000 for its first year of operation, what amount of income (rounded to the nearest thousand) would be credited to DiMarco's capital account?

A) $20,000.
B) $25,000.
C) $30,000.
D) $40,000.
E) $75,000.
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45
Trump and Hawthorne have decided to form a partnership. Trump is going to contribute a depreciable asset to the partnership as his equity contribution to the partnership. The following information regarding the asset to be contributed by Trump is available: *will be assumed by the partnership
Based on this information, Trump's beginning equity balance in the partnership will be:

A) $76,000
B) $36,000
C) $18,000
D) $27,000
E) $45,000
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46
Renee Jackson is a partner in Sports Promoters. Her beginning partnership capital balance for the current year is $55,000, and her ending partnership capital balance for the current year is $62,000. Her share of this year's partnership income was $5,250. What is her partner return on equity?

A) 8.47%
B) 8.97%
C) 9.54%
D) 10.47%
E) 10.60%
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47
The following information is available regarding John Smith's capital account in Technology Consulting Group, a general partnership, for a recent year: What is Smith's partner return on equity during the year in question?

A) 36.6%
B) 34.7%
C) 10.8%
D) 11.4%
E) 55.7%
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48
Mutual agency implies that each partner in a partnership is a fully authorized agent of the partnership. Which of the following statements is correct regarding the authority of a partner to bind the partnership in dealings with third parties?

A) The partner's authority must be derived from the partnership agreement.
B) The partner's authority may be effectively limited by a formal resolution of the other partners, even if third parties are not aware of that limitation.
C) Only a partner with a majority interest in a partnership has the authority to represent the partnership to third parties.
D) A partner has authority to deal with third parties on the behalf of the other partners only if he has written permission to do so.
E) A partner may be able to legally bind the partnership to actions even if the other partners are unaware of his actions.
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49
In the absence of a partnership agreement, the law says that income (and loss) should be allocated based on:

A) A fractional basis.
B) The ratio of capital investments.
C) Salary allowances.
D) Equal shares.
E) Interest allowances.
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50
In a partnership agreement, if the partners agreed to an interest allowance of 10% annually on each partner's investment, the interest allowance:

A) Is ignored when earnings are not sufficient to pay interest.
B) Can make up for unequal capital contributions.
C) Is an expense of the business.
D) Must be paid because the partnership contract has unlimited life.
E) Legally becomes a liability of the general partner.
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51
Partnership accounting:

A) Uses a capital account for each partner.
B) Uses a withdrawals account for each partner.
C) Allocates net income to each partner according to the partnership agreement.
D) Allocates net loss to each partner according to the partnership agreement.
E) All of these.
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52
Collins and Farina are forming a partnership. Collins is investing a building that has a market value of $80,000. However, the building carries a $56,000 mortgage that will be assumed by the partnership. Farina is investing $20,000 cash. The balance of Collins' Capital account will be:

A) $80,000.
B) $24,000.
C) $56,000.
D) $44,000.
E) $60,000.
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53
Partners' withdrawals of assets are:

A) Credited to their withdrawals accounts.
B) Debited to their withdrawals accounts.
C) Credited to their retained earnings.
D) Debited to their retained earnings.
E) Debited to their asset accounts.
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54
Which of the following statements is ?

A) Partners are employees of the partnership.
B) Salaries to partners are expenses on the partnership income statement.
C) Salary allowances usually reflect the relative value of services provided by partners.
D) Salary allowances are expenses.
E) Interest allowances are expenses.
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55
Nguyen invested $100,000 and Hansen invested $200,000 in a partnership. They agreed to share incomes and losses by allowing a $60,000 per year salary allowance to Nguyen and a $40,000 per year salary allowance to Hansen, plus an interest allowance on the partners' beginning-year capital investments at 10%, with the balance to be shared equally. Under this agreement, the shares of the partners when the partnership earns $105,000 in income are:

A) $52,500 to Nguyen; $52,500 to Hansen.
B) $35,000 to Nguyen; $70,000 to Hansen.
C) $57,500 to Nguyen; $47,500 to Hansen.
D) $42,500 to Nguyen; $62,500 to Hansen.
E) $70,000 to Nguyen; $60,000 to Hansen.
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56
Web Services is organized as a limited partnership, with David White as one of its partners. David's capital account began the year with a balance of $45,000. During the year, David's share of the partnership income was $7,500, and David received $4,000 in distributions from the partnership. What is David's partner return on equity?

A) 7.8%
B) 8.9%
C) 15.4%
D) 16.0%
E) 16.7%
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57
B. Tanner contributed $14,000 in cash plus office equipment valued at $7,000 to the JT Partnership. The journal entry to record the transaction for the partnership is:

A) Debit Cash $14,000; debit Office Equipment $7,000; credit B. Tanner, Capital $21,000.
B) Debit Cash $14,000; debit Office Equipment $7,000; credit JT Partnership, Capital $21,000.
C) Debit JT Partnership $21,000; credit B. Tanner, Capital $21,000.
D) Debit B. Tanner, Capital $21,000; credit JT Partnership, Capital $21,000.
E) Debit Cash $14,000; debit Office Equipment $7,000; credit Share Capital-Ordinary $21,000.
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58
David and Jeannie formed This & That as a limited liability company. Unless the member owners elect to be treated otherwise, the Internal Revenue Service will tax the LLC as:

A) An S corporation.
B) A C corporation.
C) A non-taxable entity.
D) A joint venture.
E) A partnership.
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59
Partnership accounting:

A) Is the same as accounting for a sole proprietorship.
B) Is the same as accounting for a corporation.
C) Is the same as accounting for a sole proprietorship, except that separate capital and withdrawal accounts are kept for each partner.
D) Is the same as accounting for an S corporation.
E) Is the same as accounting for a corporation, except that retained earnings is used to keep track of partners' withdrawals.
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60
Chen and Wright are forming a partnership. Chen will invest a building that currently is being used by another business owned by Chen. The building has a market value of $90,000. Also, the partnership will assume responsibility for a $30,000 note secured by a mortgage on that building. Wright will invest $50,000 cash. For the partnership, the amounts to be recorded for the building and for Chen's Capital account are:

A) Building, $90,000 and Chen, Capital, $90,000.
B) Building, $60,000 and Chen, Capital, $60,000.
C) Building, $60,000 and Chen, Capital, $50,000.
D) Building, $90,000 and Chen, Capital, $60,000.
E) Building, $60,000 and Chen, Capital, $90,000.
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61
Regina Harrison is a partner in Pressed for Time. An analysis of Regina Harrison's capital account indicates that during the most recent year, she withdrew $20,000 from the partnership. Her share of the partnership's net loss was $16,000 and she made an additional equity contribution of $10,000. Her capital account ended the year at $150,000. What was her capital balance at the beginning of the year?

A) $124,000
B) $144,000
C) $192,000
D) $176,000
E) $134,000
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62
Sam, Bart, and Lex are dissolving their partnership. Their partnership agreement allocates each partner 1/3 of all income and losses. The current period's ending capital account balances are Sam, $45,000; Bart, $37,000; and Lex, $(5,000). After all assets are sold and liabilities are paid, there is $77,000 in cash to be distributed. Lex is unable to pay the deficiency. The journal entry to record the distribution should be:

A) Debit Sam, Capital $25,667; debit Bart, Capital $25,667; debit Lex, Capital $25,666; credit Cash $77,000.
B) Debit Sam, Capital $42,500; debit Bart, Capital $34,500; credit Cash $77,000.
C) Debit Sam, Capital $45,000; debit Bart, Capital $37,000; credit Lex, Capital $5,000; credit Cash $77,000.
D) Debit Cash $77,000, debit Lex, Capital $5,000, credit Sam, Capital $45,000, credit Bart, Capital $37,000.
E) Debit Cash $77,000; credit Sam, Capital $25,667; credit Bart, Capital $25,667; credit Lex, Capital $25,666.
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63
A partner can withdraw from a partnership by:

A) Selling his/her interest to another person for cash.
B) Selling his/her interest to another person in exchange for assets.
C) Receiving cash from the partnership in the amount of his/her interest.
D) Receiving assets from the partnership in the amount of his/her interest.
E) All of these.
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64
Badger and Fox are forming a partnership. Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property. Fox invests $100,000 in cash and equipment that has a market value of $75,000. For the partnership, the amounts recorded for total assets and for total capital account are:

A) Total assets $525,000; total capital $400,000.
B) Total assets $400,000; total capital $400,000.
C) Total assets $650,000; total capital $650,000.
D) Total assets $400,000; total capital $525,000.
E) Total assets $525,000; total capital $525,000.
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65
A partnership recorded the following journal entry: This entry reflects:

A) Acceptance of a new partner who invests $70,000 and receives a $20,000 bonus.
B) Withdrawal of a partner who pays a $10,000 bonus to each of the other partners.
C) Addition of a partner who pays a bonus to each of the other partners.
D) Additional investment into the partnership by Tanner and Jackson.
E) Withdrawal of $10,000 each by Tanner and Jackson upon the admission of a new partner.
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66
When a partnership is liquidated:

A) Noncash assets are converted to cash.
B) Any gain or loss on liquidation is allocated to the partners' capital accounts using the income and loss sharing ratio.
C) Liabilities are paid or settled.
D) Any remaining cash is distributed to the partners based on their capital balances.
E) All of these.
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67
Smith, West, and Krug form a partnership. Smith contributes $180,000, West contributes $150,000, and Krug contributes $270,000. Their partnership agreement calls for the income or loss division to be based on the ratio of capital invested. If the partnership reports income of $175,000 for its first year, what amount of income is credited to Smith's capital account?

A) $43,750.
B) $78,750.
C) $52,500.
D) $58,333.
E) $60,000.
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68
Groh and Jackson are partners. Groh's capital balance in the partnership is $64,000, and Jackson's capital balance $61,000. Groh and Jackson have agreed to share equally in income or loss. Groh and Jackson agree to accept Block with a 25% interest. Block will invest $35,000 in the partnership. The bonus that is granted to Block equals:

A) $5,000.
B) $2,500.
C) $6,667.
D) $3,333.
E) $0, because Block must actually grant a bonus to Groh and Jackson.
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69
Badger and Fox are forming a partnership. Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property. Fox invests $100,000 in cash and equipment that has a market value of $75,000. For the partnership, the amounts recorded for the building and for Badger's Capital account are:

A) Building $350,000; Badger, Capital $350,000.
B) Building $225,000; Badger, Capital $225,000.
C) Building $225,000; Badger, Capital $125,000.
D) Building $350,000; Badger, Capital $225,000.
E) Building $350,000; Badger, Capital $300,000.
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70
Smith, West, and Krug form a partnership. Smith contributes $180,000, West contributes $150,000, and Krug contributes $270,000. Their partnership agreement calls for a 5% interest allowance on the partner's capital balances with the remaining income or loss to be allocated equally. If the partnership reports income of $174,000 for its first year, what amount of income is credited to West's capital account?

A) $58,000.
B) $57,000.
C) $61,500.
D) $55,500.
E) $48,000.
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71
The following information is available on Stewart Enterprises, a partnership, for the most recent fiscal year: There are three partners in Stewart Enterprises: Stewart, Tedder and Armstrong. At the end of the year, the partners' capital accounts were in the ratio of 2:1:2, respectively. Compute the ending capital balances of the three partners.

A) Stewart = $108,000; Tedder = $54,000; Armstrong = $108,000.
B) Stewart = $90,000; Tedder = $90,000; Armstrong = $90,000.
C) Stewart = $204,000; Tedder = $102,000; Armstrong = $204,000.
D) Stewart = $84,000; Tedder = $102,000; Armstrong = $84,000.
E) Stewart = $60,000; Tedder = $30,000; Armstrong = $60,000.
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72
Smith, West, and Krug form a partnership. Smith contributes $180,000, West contributes $150,000, and Krug contributes $270,000. Their partnership agreement calls for the income or loss division to be based on the ratio of capital invested. If the partnership reports income of $175,000 for its first year, what amount of income is credited to Krug's capital account?

A) $43,750.
B) $78,750.
C) $52,500.
D) $58,333.
E) $60,000.
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73
When a partner is added to a partnership:

A) The previous partnership ends.
B) The underlying business operations end.
C) The underlying business operations must close and then re-open.
D) The partnership must continue.
E) The partnership equity always increases.
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74
A capital deficiency means that:

A) The partnership has a loss.
B) The partnership has more liabilities than assets.
C) At least one partner has a debit balance in his/her capital account.
D) At least one partner has a credit balance in his/her capital account.
E) The partnership has been sold at a loss.
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75
Badger and Fox are forming a partnership. Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property. Fox invests $100,000 in cash and equipment that has a market value of $75,000. For the partnership, the amounts recorded for Badger's Capital account and for Fox's Capital account are:

A) Badger, Capital $350,000; Fox, Capital $175,000.
B) Badger, Capital $225,000; Fox, Capital $100,000.
C) Badger, Capital $225,000; Fox, Capital $75,000.
D) Badger, Capital $350,000; Fox, Capital $100,000.
E) Badger, Capital $225,000; Fox, Capital $175,000.
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76
Mack, Harris, and Huss are dissolving their partnership. Their partnership agreement allocates income and losses equally among the partners. The current period's ending capital account balances are Mack, $15,000, Harris, $15,000, Huss, $(2,000). After all the assets are sold and liabilities are paid, but before any contributions to cover any deficiencies, there is $28,000 in cash to be distributed. Huss pays $2,000 to cover the deficiency in his account. The general journal entry to record the final distribution would be:

A) Debit Mack, Capital $15,000; debit Harris, Capital $15,000; credit Cash $30,000.
B) Debit Mack, Capital $14,000; debit Harris, Capital $14,000; credit Cash $28,000.
C) Debit Mack, Capital $15,000; debit Harris, Capital $15,000; credit Huss, Capital $2,000; credit Cash $28,000.
D) Debit Cash $28,000; debit Huss, Capital $2,000; credit Mack, Capital $15,000; credit Harris, Capital $15,000.
E) Debit Mack, Capital $9,334; debit Harris, Capital $9,333; debit Huss, Capital $9,333; credit Cash $28,000.
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77
Groh and Jackson are partners. Groh's capital balance in the partnership is $64,000, and Jackson's capital balance $61,000. Groh and Jackson have agreed to share equally in income or loss. Groh and Jackson agree to accept Block with a 20% interest. Block will invest $35,000 in the partnership. The bonus that is granted to Groh and Jackson equals:

A) $1,500 each.
B) $1,875 each.
C) $3,750 each.
D) 1,920 to Groh; $1,830 to Jackson.
E) $0, because Groh and Jackson actually grant a bonus to Block.
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78
A bonus may be paid:

A) By a new partner when the current value of a partnership is greater than the recorded amounts of equity.
B) By a withdrawing partner to remaining partners if the recorded value of the equity is overstated.
C) To a new partner with exceptional talents.
D) By remaining partners to a withdrawing partner if the recorded equity is understated.
E) All of these.
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79
The partnership agreement for Smith Wesson & Davis, a general partnership, provided that profits be shared between the partners in the ratio of their financial contributions to the partnership. Smith contributed $100,000, Wesson contributed $60,000 and Davis contributed $20,000. In the partnership's first year of operation, it incurred a loss of $210,000. What amount of the partnership's loss, rounded to the nearest dollar, should be absorbed by Smith?

A) $70,000
B) $116,667
C) $23,333
D) $105,000
E) $52,500
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80
When a partner is unable to pay a capital deficiency:

A) The partner must take out a loan to cover the deficient balance.
B) The deficiency is absorbed by the remaining partners before distribution of cash.
C) The partnership ends before distribution of cash.
D) The deficient partner is relieved of the liability.
E) The remaining partners must wait for the deficiency to be paid before cash is distributed.
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