#totheorigin | Explore Tumblr Posts and Blogs

delicatelyspeedyenthusiast-blog · 8 years

Text

ACC 206 Week 4 Quiz – Strayer

Click on the Link Below to Purchase A+ Graded Course Material

http://budapp.net/ACC-206-Accounting-Principles-II-Week-4-Quiz-Strayer-262.htm

Quiz 3 Chapter 12

CHAPTER12

ACCOUNTINGFORPARTNERSHIPS

CHAPTERSTUDYOBJECTIVES

1.Identifythecharacteristicsofthepartnershipformofbusinessorganization.

2.Explaintheaccountingentriesfortheformationofapartnership.

3.Identifythebasesfordividingnetincomeornetloss.

4.Describetheformandcontentofpartnershipfinancialstatements.

5.Explaintheeffectsoftheentriestorecordtheliquidationofapartnership.

6.Explaintheeffectsoftheentrieswhenanewpartnerisadmitted.

7.Describetheeffectsoftheentrieswhenapartnerwithdrawsfromthefirm.

TRUE-FALSESTATEMENTS

1. Thepersonalassets,liabilities,andpersonaltransactionsofpartnersareexcludedfrom theaccountingrecordsofthepartnership.

2. Theactofanypartnerisbindingonallotherpartnersiftheactappearstobeappropriate forthepartnership.

3. Amajoradvantageofthepartnershipformoforganizationisthatthepartnershave unlimitedliability.

4. Partnershipcreditorsmayhaveaclaimonthepersonalassetsofanyofthepartnersifthe partnershipassetsarenotsufficienttosettleclaims.

5. Thepartnershipagreementbetweenpartnersmustbeinwriting.

6. Ifapartnerinvestsnoncashassetsinapartnership,theyshouldberecordedbythe partnershipattheirfairmarketvalue.

7. L.Hillinveststhefollowingassetsinanewpartnership:$15,000incash,andequipment thatcost$30,000buthasabookvalueof$17,000andfairmarketvalueof$20,000.Hill, Capitalwillbecreditedfor$32,000.

8. Twoproprietorshipscannotcombineandformapartnership.

9. Ifapartner'sinvestmentinapartnershipconsistsofequipmentthathasaccumulated depreciationof$8,000,itwouldnotbeappropriateforthepartnershiptorecordthe accumulateddepreciation.

10. Ifapartner'sinvestmentinapartnershipconsistsofAccountsReceivableof$25,000and anAllowanceforDoubtfulAccountsof$7,000,itwouldnotbeappropriateforthe partnershiptorecordthe AllowanceforDoubtfulAccounts.

11. Unlessstatedotherwiseinthepartnershipcontract,profitsandlossesaresharedamong thepartnersintheratiooftheircapitalequitybalances.

12. Ifsalaryallowancesandinterestoncapitalarestipulatedinthepartnershipprofitandloss sharingagreement,theyareimplementedonlyifincomeissufficienttocovertheamounts requiredbythesefeatures.

13. Unlessthepartnershipagreementspecificallyindicatesanincomeratio,partnershipnet incomeorlossisnotallocatedtothepartners.

AccountingforPartnerships 12-5

14. Partnershipincomeorlossneednotbeclosedtopartners'capitalaccountseachperiod becauseoftheunlimitedlifecharacteristicofpartnerships.

15. Ifapartnershiphasalossfortheperiod,theclosingentrytotransferthelosstothe partnerswillrequireacredittotheIncomeSummaryaccount.

16. Thepartners'drawingaccountsareclosedeachperiodintotheIncomeSummary account.

17. Salaryallowancestopartnersareamajorexpenseonmostpartnershipincome statements.

18. Aninterestallowanceinsharingpartnershipnetincome(ornetloss)isrelatedtothe amountofpartners'investedcapital duringtheperiod.

19. Thefinancialstatementsofapartnershiparesimilartothoseofaproprietorship.

20. Theincomeearnedbyapartnershipwillalwaysbegreaterthantheincomeearnedbya proprietorshipbecauseinapartnershipthereismorethanoneownercontributingtothe successofthebusiness.

21. ThefunctionofthePartners'CapitalStatementistoexplainthechangesinpartners' capitalaccountbalancesduringaperiod.

22. Adetailedlistingofalltheassetsinvestedbyapartnerinapartnershipappearsonthe Partners'CapitalStatement.

23. Totalpartners'equityofapartnershipisequaltothesumofallpartners'capitalaccount balances.

24. Thedistributionofcashtopartnersinapartnershipliquidationisalwaysmadebasedon thepartners'incomesharingratio.

25. Theliquidationofapartnershipmeansthatanewpartnerhasbeenadmittedtothe partnership.

a26. Theadmissionofanewpartnerresultsinthelegaldissolutionoftheexistingpartnership andthebeginningofanewpartnership.

a27. Ifanewpartnerisadmittedintoapartnershipbyinvestment,thetotalassetsandtotal capitalwillchange.

a28. Abonustooldpartnersresultswhenthenewpartner'scapitalcreditonthedateof admittanceisgreaterthanhisorherinvestmentinthefirm.

a29. Ifanewpartnerinvestsinapartnershipatbookvalueandacquiresa1/4interestintotal partnershipcapital,itindicatesthatabonuswaspaidtotheoriginalpartners.

a30. Abonustotheremainingpartnersresultswhenaretiringpartnerreceivespartnership assetswhicharelessthanhisorhercapitalbalanceonthedateofwithdrawal.

AdditionalTrue-FalseQuestions

31. Apartnershipisanassociationofnomorethantwopersonstocarryonasco-ownersofa businessforprofit.

32. Onceassetshavebeeninvestedinthepartnership,theyareownedjointlybyallpartners.

33. Eachpartner'sinitialinvestmentinapartnershipshouldberecordedatbookvalue.

34. Partnershipincomeissharedinproportiontoeachpartner'scapitalequityinterestunless thepartnershipcontractspecificallyindicatesthemannerinwhichnetincomeornetloss istobedivided.

35. Inaliquidation,thefinaldistributionofcashtopartnersshouldbeonthebasisoftheir incomeratios.

a36. Inanadmissionofapartnerbyinvestmentofassets,thetotalnetassetsandtotalcapital ofthepartnershipdonotchange.

a37. Thewithdrawalofapartnerlegallydissolvesthepartnership.

MULTIPLECHOICEQUESTIONS

38. Ahybridformofbusinessorganizationwithcertainfeatureslikeacorporationisa(n) a.limitedliabilitypartnership.

b.limitedliabilitycompany. c."S"corporation.

d.sub-chapter"S"corporation.

39. Apartnership

a.hasonlyoneowner.

b.paystaxesonpartnershipincome. c.mustfileaninformationtaxreturn.

d.isnotanaccountingentityforfinancialreporting purposes.

40. Ageneralpartnerinapartnership

a.hasunlimitedliabilityforallpartnershipdebts. b.isalwaysthegeneralmanagerofthefirm.

c.isthepartnerwholacksaspecialization.

d.isliableforpartnershipliabilitiesonlytotheextentofthatpartner'scapitalequity.

AccountingforPartnerships 12-7

41. Theindividualassetsinvestedbyapartnerinapartnership a.revertbacktothatpartnerifthepartnershipliquidates.

b.determinethatpartner'sshareofnetincomeorlossfortheyear. c.arejointlyownedbyallpartners.

d.determinethescopeofauthorityofthatpartner.

42. Whichoneofthefollowingwouldnotbeconsideredadisadvantageofthepartnership formoforganization?

a.Limitedlife

b.Unlimitedliability c.Mutualagency

d.Easeofformation

43. Thepartnershipformofbusinessis

a.restrictedtolawandmedicalpractices.

b.restrictedtofirmshavingfewerthan10partners. c.notrestrictedtoanyparticulartypeofbusiness. d.mostoftenusedinrelativelylargecompanies.

44. Whichofthefollowingisnotaprincipalcharacteristicofthepartnershipformofbusiness organization?

a.Mutualagency

b.Associationofindividuals c.Limitedliability

d.Limitedlife

45. Thepartnershipagreementshouldincludeeachofthefollowingexceptthe a.dateofthepartnershipinception.

b.principallocationofthefirm.

c.survivingfamilymembersintheeventofapartner'sdeath. d.Eachoftheseshouldbeincluded.

46. Whichofthefollowingstatementsistrueregardingtheformofalegallybinding partnershipcontract?

a.Thepartnershipcontractmustbeinwriting.

b.Thepartnershipcontractmaybebasedonahandshake. c.Thepartnershipcontractmaybeimplied.

d.Thepartnershipcontractcannotbe oral.

47. Whichofthefollowingstatementsaboutapartnershipiscorrect?

a.Thepersonalassetsofapartnerareincludedinthepartnershipaccountingrecords. b.Apartnershipisnotrequiredtofileaninformationtaxreturn.

c.Eachpartner'sshareofincomeistaxabletothepartnership.

d.Apartnershiprepresentsanaccountingentityforfinancialreportingpurposes.

48. Inapartnership,mutualagencymeans

a.eachpartneractsonhisownbehalfwhenengaginginpartnershipbusiness.

b.theactofanypartnerisbindingonallotherpartners,onlyifpartnersactwithintheir copeofauthority.

c.anactbyapartnerisjudgedasbindingonotherpartnersdependingonwhetherthe actappearstobeappropriateforthepartnership.

d.thatpartnersmustpaytaxesonamutualorcombinedbasis.

12-8 TestBankforAccountingPrinciples,EighthEdition

49. Apartnership

a.isdissolvedonlybythewithdrawalofapartner.

b.isdissolvedupontheacceptanceofanewpartner. c.dissolutionmeansthebusinessmustliquidate.

d.hasunlimitedlife.

50. Thepartnerinalimitedpartnershipthathasunlimitedliabilityisreferredtoasthe a.leadpartner.

b.headpartner.

c.generalpartner.d.unlimitedpartner.

51. Limitedpartnerships

a.musthaveatleastonegeneralpartner.

b.guaranteethatapartnerwillreceiveareturn.

c.guaranteethatapartnerwillgetbackhisoriginalinvestment. d.arelimitedtoonlythreepartners.

52. TheMaris-Cranepartnershipisterminatedwhencreditorclaimsexceedpartnership assetsby$40,000.CraneisamillionaireandMarishasnopersonalassets.Maris' partnershipinterestis75%andCrane'sis25%.Creditors

a.mustcollecttheirclaimsequallyfromMarisandCrane. b.maycollecttheentire$40,000fromCrane.

c.mustcollecttheirclaims75%fromMarisand25%fromCrane.

d.maynotrequireCranetousehispersonalassetstosatisfythe$40,000inclaims.

53. Whichofthefollowingstatementsaboutpartnershipsisincorrect? a.Partnershipassetsareco-ownedbypartners.

b.Ifa partnership isterminated,the assets do not legallyrevert totheoriginal contributor.c.Ifthepartnershipagreementdoesnotspecifythemannerinwhichnetincomeistobe

shared,itisdistributedaccordingtocapitalcontributions.

d.Eachpartnerhasaclaimonassetsequaltothebalanceinthepartner'scapital account.

54. Whichofthefollowingisnotanadvantageofthepartnershipformofbusiness? a.Mutualagency

b.Easeofformation

c.Easeofdecisionmaking

d.Freedomfromgovernmentalregulationsandrestrictions

55. ThelargestcompaniesintheUnitedStatesareprimarilyorganizedas a.limitedpartnerships.

b.partnerships. c.corporations.

d.proprietorships.

56. Thebasisfordividingpartnershipnetincomeornetlossisreferredtoasanyofthe followingexceptthe

a.incomeratio.

b.incomeandlossratio. c.profitandlossratio.d.incomesharingratio.

AccountingforPartnerships 12-9

57. Whichofthefollowingstatementsisincorrectregardingpartnershipagreements? a.Itmaybereferredtoasthe“articlesofco-partnership.”

b.Oralagreementsarepreferabletowrittenarticles.

c.Itshouldspecifythedifferentrelationshipsthataretoexistamongthepartners. d.Itshouldstateproceduresforsubmittingdisputestoarbitration.

58. Nortoninvestspersonallyownedequipment,whichoriginallycost$110,000andhas accumulateddepreciationof$30,000intheNortonandKennettpartnership.Bothpartners agreethatthefairmarketvalueoftheequipmentwas$60,000.Theentrymadebythe partnershiptorecordNorton'sinvestmentshouldbe

a.Equipment............................................................................ 110,000AccumulatedDepreciation—Equipment...................... 30,000 Norton,Capital............................................................. 80,000

b.Equipment............................................................................ 80,000

Norton,Capital............................................................. 80,000 c.Equipment............................................................................ 60,000

LossonPurchaseofEquipment.......................................... 20,000 AccumulatedDepreciation—Equipment............................... 30,000

Norton,Capital............................................................. 110,000 d.Equipment............................................................................ 60,000

Norton,Capital............................................................. 60,000

59. PartnerBisinvestinginapartnershipwithPartnerA.Bcontributesaspartofhisinitial investment,AccountsReceivableof$80,000;anAllowanceforDoubtfulAccountsof $12,000;and$8,000cash.TheentrythatthepartnershipmakestorecordB'sinitial contributionincludesa

a.credittoB,Capitalfor$88,000.

b.debittoAccountsReceivablefor$68,000. c.credittoB,Capitalfor$76,000.

d.debittoAllowanceforDoubtfulAccountsfor$12,000.

60. Whichofthefollowingwouldnotberecordedintheentryfortheformationofa partnership?

a.Accumulateddepreciation

b.Allowancefordoubtfulaccounts c.Accountsreceivable

d.Allofthesewouldberecorded.

61. BobisinvestinginapartnershipwithJerry.Bobcontributesequipmentthatoriginallycost $63,000,hasabookvalueof$30,000,andafairmarketvalueof$39,000.Theentrythat thepartnershipmakestorecordBob'sinitialcontributionincludesa

a.debittoEquipmentfor$33,000. b.debittoEquipmentfor$63,000. c.debittoEquipmentfor$39,000.

d.credittoAccumulatedDepreciationfor$33,000.

62. Apartnercontributes,aspartofherinitialinvestment,accountsreceivablewithan allowancefordoubtfulaccounts.Whichofthefollowingreflectsapropertreatment?

12-10TestBankforAccountingPrinciples,EighthEdition

a.Thebalanceoftheaccountsreceivableaccountshouldberecordedonthebooksof thepartnershipatitsnetrealizablevalue.

b.Theallowanceaccountmaybesetuponthebooksofthepartnershipbecauseit relatestotheexistingaccountsthatarebeingcontributed.

c.Theallowanceaccountshouldnotbecarriedontothebooksofthepartnership.

d.Theaccountsreceivableandallowanceshouldnotberecordedonthebooksofthe partnershipbecauseapartnermustinvestcashinthebusiness.

63. Whichoneofthefollowingwouldnotbeconsideredanexpenseofapartnershipin determiningincomefortheperiod?

a.Expiredinsurance

b.Salaryallowancetopartners c.Suppliesused

d.Freight-out

64. Apartnerinvestsintoapartnershipabuildingwithanoriginalcostof$90,000and accumulateddepreciationof$40,000.Thisbuildinghasa$70,000fairmarketvalue.Asa resultoftheinvestment,thepartner’scapitalaccountwillbecreditedfor

a.$70,000. b.$50,000. c.$90,000. d.$120,000.

Usethefollowinginformationforquestions65–67.

JamesandLauraareformingapartnership.Jameswillinvestatruckwithabookvalueof $10,000andafairmarketvalueof$14,000.Laurawillinvestabuildingwithabookvalueof $30,000andafairmarketvalueof$42,000withamortgageof$15,000.

65. Atwhatamountshouldthebuildingberecorded? a.$30,000

b.$27,000 c.$42,000 d.$45,000

66. WhatamountshouldberecordedinLaura’scapitalaccount? a.$30,000

b.$27,000 c.$42,000 d.$14,000

67. WhatamountshouldberecordedinJames’capitalaccount? a.$30,000

b.$27,000 c.$42,000 d.$14,000

68. SpeirandPablodecidetoorganizeapartnership.Speirinvests$15,000cash,andPablo contributes$12,000cashandequipmenthavingabookvalueof$6,000.Choosetheentry torecordPablo’sinvestmentinthepartnershipassumingtheequipmenthasafairmarket valueof$9,000.

AccountingforPartnerships 12-11

a.Cash..................................................................................... 12,000 Equipment........................................................................... 6,000

Pablo,Capital............................................................. 18,000 b.Equipment........................................................................... 6,000

Pablo,Capital............................................................. 6,000 c.Cash..................................................................................... 12,000

Pablo,Capital............................................................. 12,000 d.Cash..................................................................................... 12,000

Equipment........................................................................... 9,000

Pablo,Capital............................................................. 21,000

Usethefollowinginformationforquestions69–71.

PartnersAbelandCainhavecapitalbalancesinapartnershipof$40,000and$60,000, respectively.Theyagreetoshareprofitsandlossesasfollows:

Abel Cain

Assalaries $10,000 $12,000 Asinterestoncapitalatthebeginningoftheyear 10% 10% Remainingprofitsorlosses 50% 50%

69. Ifincomefortheyearwas$50,000,whatwillbethedistributionofincometoCain? a.$23,000

b.$27,000 c.$20,000 d.$10,000

70. Ifincomefortheyearwas$30,000,whatwillbethedistributionofincometoAbel? a.$13,000

b.$77,000 c.$10,000 d.$14,000

71. Ifnetlossfortheyearwas$2,000,whatwillbethedistributiontoCain? a.$12,000income

b.$1,000income c.$1,000loss

d.$2,000loss

72. PartnersJimandJoehaveagreedtoshareprofitsandlossesinan80:20ratio respectively,afterJimisallowedasalaryallowanceof$140,000andJoeisalloweda salaryallowanceof$70,000.Ifthepartnershiphadnetincomeof$140,000for2008, Joe’sshareoftheincomewouldbe

a.$70,000. b.$56,000. c.$84,000. d.$14,000.

12-12TestBankforAccountingPrinciples,EighthEdition

73. Themostappropriatebasisfordividingpartnershipnetincomewhenthepartnersdonot plantotakeanactiveroleindailyoperationsis

a.onafixedratio.

b.interestoncapitalbalancesandsalariestothepartners. c.onaratiobasedaveragecapitalbalances.

d.salariestothepartnersandtheremainderonafixedratio.

74. TheSmithandJonespartnershipagreementstipulatesthatprofitsandlosseswillbe sharedequallyaftersalaryallowancesof$160,000forSmithand$80,000forJones.At thebeginningoftheyear,Smith'sCapitalaccounthadabalanceof$320,000,whileJones' Capitalaccounthadabalanceof$280,000.Netincomefortheyearwas$200,000.The balanceofJones'Capitalaccountattheendoftheyearafterclosingis

a.$380,000. b.$80,000.c.$340,000. d.$360,000.

75. Apartner'sshareofnetincomeisrecognizedintheaccountsthrough a.adjustingentries.

b.closingentries.

c.correctingentries. d.accrualentries.

76. ThepartnershipofNottandReesereportsnetincomeof$60,000.Thepartnersshare equallyinincomeandlosses.Theentrytorecordthepartners'shareofnetincomewill includea

a.credittoIncomeSummaryfor$60,000. b.credittoNott,Capitalfor$30,000.

c.debittoReese,Capitalfor$30,000.d.credittoReese,Drawingfor$30,000.

77. PartnerAreceives$210,000andPartnerBreceives$140,000inasplitof$350,000net income.Whichexpressiondoesnotreflecttheincomesplittingarrangement?

a.3:2

b.3/5&2/5 c.6:4

d.2:1

78. Anincomeratiobasedoncapitalbalancesmightbeappropriatewhen a.serviceisa primaryconsideration.

b.some,butnotall,partnersplantoworkinthebusiness.

c.fundsinvestedinthepartnershipareconsideredthecriticalfactor. d.littlenetincomeisexpected.

79. Ifthepartnershipagreementspecifiessalariestopartners,interestonpartners'capital, andtheremainderonafixedratio,andpartnershipnetincomeisnotsufficienttocover bothsalariesandinterest,

a.onlysalariesareallocatedtothepartners. b.onlyinterestisallocatedtothepartners.

c.theentirenetincomeissharedonafixedratio.

d.bothsalariesandinterestareallocatedtothepartners.

AccountingforPartnerships 12-13

80. Whichofthefollowingwouldnotbeconsideredanexpenseofapartnershipin determiningincomefortheperiod?

a.Expiredinsuranceb.Incometaxexpense c.Rentexpense

d.Utilitiesexpense

Usethefollowinginformationforquestions81–82.

ThenetincomeofthePineandMilespartnershipis$180,000.Thepartnershipagreement specifiesthatPineandMileshaveasalaryallowanceof$48,000and$72,000,respectively.The partnershipagreementalsospecifiesaninterestallowanceof10%oncapitalbalancesatthe beginningoftheyear.Eachpartnerhadabeginningcapitalbalanceof$120,000.Anyremaining netincomeornetlossissharedequally.

81. WhatisPine'sshareofthe$180,000netincome? a.$48,000

b.$60,000 c.$66,000 d.$78,000

82. WhatisthebalanceofMiles'Capitalaccountattheendoftheyearafternetincomehas beendistributed?

a.$204,000 b.$192,000 c.$222,000 d.$210,000

83. ThenetincomeoftheTorreyandGorepartnershipis$250,000.Thepartnership agreementspecifiesthatprofitsandlosseswillbesharedequallyaftersalaryallowances of$200,000(Torrey)and$150,000(Gore)havebeenallocated.Atthebeginningofthe year,Torrey'sCapitalaccounthadabalanceof$500,000andGore'sCapitalaccounthad abalanceof$650,000.WhatisthebalanceofGore'sCapitalaccountattheendofthe yearafterprofitsandlosseshavebeendistributed?

a.$650,000 b.$100,000 c.$750,000 d.$775,000

84. Apartners'capitalstatementexplains

a.theamountoflegalliabilityofeachofthepartners.

b.thetypesofassetsinvestedinthebusinessbyeachpartner.

c.howthepartnershipwillbecapitalizedifanewpartnerisadmittedtothepartnership.d.thechangesineachpartner'scapitalaccountandintotalpartnershipcapitalduringa

period.

85. Eachofthefollowingisusedinpreparingthepartners’capitalstatementexceptthe a.balancesheet.

b.incomestatement.

c.partners’capitalaccounts.d.partners’drawingaccounts.

12-14TestBankforAccountingPrinciples,EighthEdition

86. Theowners'equitystatementforapartnershipiscalledthe a.partners'proportionalstatement.

b.partners'capitalstatement.

c.statementofshareholders'equity. d.capitalanddrawingstatement.

87. Whichofthefollowingwouldnotcauseanincreaseinpartnershipcapital? a.Drawings

b.Netincome

c.Additionalcapitalinvestmentbythepartners d.Initialcapitalinvestmentbythepartners

88. JillGrier'scapitalstatementrevealsthatherdrawingsduringtheyearwere$50,000.She madeanadditionalcapitalinvestmentof$25,000andhershareofthenetlossforthe yearwas$10,000.Herendingcapitalbalancewas$200,000.WhatwasJillGrier's beginningcapitalbalance?

a.$225,000 b.$185,000 c.$235,000 d.$260,000

89. BillWrenstartedtheyearwithacapitalbalanceof$180,000.Duringtheyear,hisshareof partnershipnetincomewas$160,000andhewithdrew$30,000fromthepartnershipfor personaluse.Hemadeanadditionalcapitalcontributionof$50,000duringtheyear.The amountofBillWren'scapitalbalancethatwillbereportedontheyear-endbalancesheet willbe

a.$160,000. b.$390,000. c.$300,000. d.$360,000.

90. ThePartners'CapitalStatementfortheUnitedCenterreportedthefollowinginformationin total:

Capital,January1..................................................$120,000 Additionalinvestment............................................. 40,000 Drawings................................................................ 80,000 Netincome............................................................. 100,000

Thepartnershiphasthreepartners:Moon,Garr,andRicewithendingcapitalbalancesin aratio40:20:40.Whataretherespectiveendingbalancesof thethreepartners?

a.Moon,$80,000;Garr,$40,000;Rice, $80,000. b.Moon,$72,000:Garr,$36,000;Rice, $72,000.

c.Moon,$136,000;Garr,$68,000;Rice,$136,000. d.Moon,$90,000;Garr,$48,000;Rice, $90,000.

AccountingforPartnerships 12-15

91. ThetotalcolumnofthePartners'CapitalStatementforNorth Companyis asfollows:

Capital,January1................................................. Additionalinvestment............................................ Drawings............................................................... Netincome............................................................

$150,000 60,000 90,000 180,000

Thepartnershiphasthreepartners.Thefirsttwopartnershaveendingcapitalbalances thatareequal.Theendingbalanceofthethirdpartnerishalfoftheendingbalanceofthe firstpartner. Whatistheendingcapitalbalanceofthethirdpartner?

a.$72,000 b.$48,000 c.$60,000 d.$66,000

92. Thepartners'drawingaccountsare

a.reportedontheincomestatement. b.reportedonthebalancesheet.

c.closedtoIncomeSummary.

d.closedtothepartners'capitalaccounts.

93. TheUniformPartnershipActprovidesthat

a.apurchaserofapartnershipinterestisnotapartneruntilheorsheisacceptedinto thefirmbythecontinuingpartners.

b.apartnermustobtaintheapprovalofotherpartnersbeforesellinghisorherinterest.c.thepricepaidinapurchaseofpartner'sinterestmustbeequaltothecapitalequity

acquired.

d.thepricepaidinapurchaseofpartner'sinterestmustbegreaterthanthecapital equityacquired.

94. Thebalancesheetofapartnershipwill

a.reportretainedearningsbelowthepartnershipcapitalaccounts. b.showaseparatecapitalaccountforeachpartner.

c.showaseparatedrawingaccountforeachpartner.

d.showtheamountofincomethatwasdistributedtoeachpartner.

95. Theliquidationofapartnershipmayresultfromeachofthefollowingexceptthe a.bankruptcyofthepartnership.

b.deathofapartner.

c.retirementofapartner.

d.saleofthebusinessbythepartners.

96. Intheliquidationofapartnership,anygainorlossontherealizationofnoncashassets shouldbeallocated

a.firsttocreditorsandtheremaindertopartners.

b.tothepartnersonthebasisoftheircapitalbalances.

c.tothepartnersonthebasisoftheir income-sharingratio. d.onlyafterallcreditorshavebeenpaid.

97. Intheliquidationofapartnership,anypartnerwhohasacapitaldeficiency a.hasapersonaldebttothepartnershipfortheamountofthedeficiency. b.isautomaticallyterminatedasapartner.

c.willreceiveacashdistributiononlyonthebasisofhisorherincome-sharingratio. d.isnotobligatedtomakeupthecapitaldeficiency.

12-16TestBankforAccountingPrinciples,EighthEdition

98. PartnersA,B,andChavecapitalaccountbalancesof$120,000each.Theincomeand lossratiois5:2:3,respectively.Intheprocessofliquidatingthepartnership,noncash assetswithabookvalueof$100,000aresoldfor$40,000.ThebalanceofPartnerB's Capitalaccountafterthesaleis

a.$90,000. b.$102,000. c.$108,000. d.$132,000.

Usethefollowinginformationforquestions99–101.

Thepartners'incomeandlosssharingratiois2:3:5,respectively.

D,E,ANDFPARTNERSHIP BalanceSheetDecember31,2008

Assets LiabilitiesandOwners'Equity

Cash

Noncashassets

Total

$90,000 570,000

$660,000

Liabilities D,Capital E,Capital F,Capital

Total

$300,000 120,000 180,000

60,000$660,000

99. IftheD,E,andFPartnershipisliquidatedbysellingthenoncashassetsfor$390,000and creditorsarepaidinfull,whatistheamountofcashthatcanbesafelydistributedtoeach partner?

a.D,$72,000;E,$108,000;F,$0.

b.D,$84,000;E,$126,000;F,$30,000. c.D,$69,000;E,$111,000;F,$0.

d.D,$66,000;E,$114,000;F,$0.

100. IftheD,E,andFPartnershipisliquidatedbysellingthenoncashassetsfor$750,000, andcreditorsarepaidinfull,whatisthetotalamountofcashthatPartnerDwillreceivein thedistributionofcashtopartners?

a.$36,000 b.$234,000 c.$156,000 d.$150,000

101. IftheD,E,andFPartnershipisliquidatedandthenoncashassetsareworthless,the creditorswilllooktowhatpartner'spersonalassetsforsettlementofthecreditors'claims? a.ThepersonalassetsofPartnerE.

b.ThepersonalassetsofPartnersDandF.

c.ThepersonalassetsofPartnersD,E,andF.

d.Thepersonalassetsofthepartnersarenotavailableforpartnershipdebts.

AccountingforPartnerships 12-17

102. Ifapartnerhasacapitaldeficiencyanddoesnothavethepersonalresourcestoeliminate it,

a.thecreditorswillhavetoabsorbthecapitaldeficiency.

b.theotherpartnerswillabsorbthecapitaldeficiencyonthebasisoftheirrespective capitalbalances.

c.theotherpartnerswillhavetoabsorbthecapitaldeficiencyonthebasisoftheir respectiveincomesharingratios.

d.neitherthecreditorsnortheotherpartnerswillhavetoabsorbthecapitaldeficiency.

103. Whenapartnershipterminatesbusiness,thesaleofnoncashassetsiscalled a.liquidation.

b.realization. c.recognition. d.disposition.

104. Theliquidationofapartnership

a.cannotbeavoluntaryactofthepartners. b.terminatesthebusiness.

c.eliminatesthosepartnerswithacapitaldeficiency. d.cannotoccurunlessallpartnersapprove.

105. Theliquidationofapartnershipisaprocesscontainingthefollowingsteps:

1.Paypartnershipliabilitiesincash.

2.Allocatethegainorlossonrealizationtothepartnersontheirincomeratios. 3.Sellnoncashassetsforcashandrecognizeagainorlossonrealization.

4.Distributeremainingcashtopartnersonthebasisoftheirremainingcapitalbalances.

Identifythepropersequencingofthestepsintheliquidationprocess. a.3,2,4,1.

b.3,2,1,4. c.1,3,2,4. d.1,4,3,2.

106. Inthefinalstepoftheliquidationprocess,remainingcashisdistributedtopartners a.onanequalbasis.

b.onthebasisoftheincomeratios.

c.onthebasisoftheremainingcapitalbalances. d.regardlessofcapitaldeficiencies.

107. Intheliquidationprocess,ifacapitalaccountshowsadeficiency

a.thepartnerwithadeficiencyhasanobligationtothepartnershipfortheamountofthe deficiency.

b.itmaybewrittenofftoa"Loss"account.

c.itisdisregardeduntilafterthepartnershipbooksareclosed. d.itcanbewrittenofftoa"Gain"account.

108. Beforedistributinganyremainingcashtopartnersinapartnershipliquidation,itis necessarytodoeachof thefollowingexcept

a.sellnoncashassetsforcash.

b.recognizeagainorlossonrealization.

c.allocatethegainorlosstothepartnersbasedontheircapitalbalances. d.paypartnershipliabilitiesincash.

12-18TestBankforAccountingPrinciples,EighthEdition

109. Kate,Sue,andTinaformedapartnershipwithincome-sharingratiosof50%,30%,and 20%,respectively.Cashof$180,000wasavailableafterthepartnership’sassetswere liquidated.Priortothefinaldistributionofcash,Kate’scapitalbalancewas$200,000, Sue’scapitalbalancewas$150,000,andTinahadacapitaldeficiencyof$50,000.Based uponacashpaymentsschedule,Kateshouldreceive

a.$175,000. b.$168,750. c.$131,250. d.$200,000.

110. A,BandCarepartners,sharingincome2:1:2.Aftersellingalloftheassetsforcash, dividinggainsandlossesonrealization,andpayingliabilities,thebalancesinthecapital accountsareasfollows:A,$10,000Cr;B,$10,000Cr;andC,$30,000Cr.Howmuch cashshouldbedistributedtoA?

a.$6,000 b.$20,000 c.$10,000 d.$16,667

111. Inliquidation,balancespriortothedistributionofcashtothepartnersare:Cash$300,000; Moorman,Capital$140,000;Simpson,Capital$130,000,andKelton,Capital$30,000. Theincomeratiois6:2:2,respectively.Howmuchcashshouldbedistributedto Moorman?

a.$125,000 b.$136,250 c.$140,000 d.$150,000

112. Assumethesamefactsinquestion111above,exceptthatthereisonly$255,000incash andKeltonhasacapitaldeficiencyof$15,000.Howmuchcashshouldbedistributedto SimpsonifKeltondoes notpayhisdeficiency?

a.$122,500 b.$126,250 c.$118,750 d.$130,000

a113. D.Givenspurchasesa25%interestfor$30,000whentheSuppan,Porter,James partnershiphastotalcapitalof$270,000.PriortotheadmissionofGivens,eachpartner hasacapitalbalanceof$90,000.Eachpartnerrelinquishesanequalamountofhiscapital balancetoGivens.TheamounttoberelinquishedbyJamesis

a.$15,000. b.$19,000. c.$22,500. d.$37,500.

a114.Bryantisadmittedtoapartnershipwitha25%capitalinterestbyacashinvestmentof $90,000.Iftotalcapitalofthepartnershipis$390,000beforeadmittingBryant,thebonus toBryantis

a.$30,000. b.$15,000. c.$45,000. d.$60,000.

AccountingforPartnerships 12-19

Usethefollowinginformationforquestions115–116.

CarleyandKingmanarepartnerswhoshareincomeandlossesintheratioof3:2,respectively. OnAugust31,theircapitalbalanceswere:Carley,$175,000andKingman,$150,000.Onthat date,theyagreetoadmitLernerasapartnerwithaone-thirdcapital interest.

a115.IfLernerinvests$125,000inthepartnership,whatisCarley'scapitalbalanceafter Lerner'sadmittance?

a.$150,000 b.$158,333 c.$160,000 d.$175,000

a116.IfLernerinvests$200,000inthepartnership,whatisKingman'scapitalbalanceafter Lerner'sadmittance?

a.$175,000 b.$160,000 c.$157,500 d.$150,000

a117.KingandNottarepartnerswhoshareprofitsandlossesequallyandhavecapital balancesof$560,000and$490,000,respectively.Starrisadmittedintothepartnership byinvesting$490,000for30%capitalinterest.TheaccountbalanceofNott,Capitalafter theadmissionofStarrwouldbe

a.$462,000. b.$476,000. c.$504,000. d.$490,000.

a118.StineandWatsonhavepartnershipcapitalbalancesof$320,000and$240,000, respectively.WatsonnegotiatestosellhispartnershipinteresttoLearyfor$280,000. StineagreestoacceptLearyasanewpartner.Thepartnershipentrytorecordthis transactionis

a.Cash..................................................................................... 280,000

Leary,Capital.............................................................. 280,000 b.Watson,Capital.................................................................... 280,000

Leary,Capital.............................................................. 280,000 c.Cash..................................................................................... 40,000

Watson,Capital.................................................................... 240,000

Leary,Capital.............................................................. 280,000 d.Watson,Capital.................................................................... 240,000

Leary,Capital.............................................................. 240,000

a119.HillandEddysharepartnershipprofitsandlossesintheratioof6:4.Hill'sCapitalaccount balanceis$320,000andEddy’sCapitalaccountbalanceis$200,000.Porterisadmittedto thepartnershipbyinvesting$360,000andistoreceiveaone-fourthownershipinterest.Hill, Eddy andPorter's capitalbalancesafter Porter'sinvestment will be

Hill Eddy Porter

a.$320,000 $200,000 $360,000 b.$404,000 $256,000 $220,000 c.$396,000 $264,000 $220,000 d.$390,000 $270,000 $220,000

12-20TestBankforAccountingPrinciples,EighthEdition

a120.JudyandDebhavepartnershipcapitalaccountbalancesof$600,000and$450,000, respectivelyandshareprofitsandlossesequally.Anneisadmittedtothepartnershipby investing$250,000foraone-fourthownershipinterest.ThebalanceofDeb'sCapital accountafterAnneisadmittedis

a.$412,500. b.$450,000. c.$487,500. d.$325,000.

a121.Theadmissionofanewpartnertoanexistingpartnership

a.maybeaccomplishedonlybyinvestingassetsinthepartnership. b.requirespurchasingtheinterestofoneormoreexistingpartners. c.causesalegaldissolutionoftheexistingpartnership.

d.isalmostalwaysaccompaniedbytheliquidationofthebusiness.

a122.Whenapartnershipinterestispurchased

a.everypartner’scapitalaccountisaffected.

b.thetransactionisapersonaltransactionbetweenthepurchaserandtheselling partner(s).

c.thebuyerreceivesequityequaltotheamountofcashpaid. d.allpartnerswillreceivesomepartofthepurchaseprice.

a123.AdlerandLynneachsell1/3oftheirpartnershipinteresttoSele,receiving$140,000each. Atthetimeoftheadmission,eachpartnerhasa$420,000capitalbalance.Theentryto recordtheadmissionofSelewillshowa

a.debittoCashfor$280,000.

b.credittoSele,Capitalfor$420,000. c.debittoLynn,Capitalfor$420,000. d.debittoAdler,Capitalfor$140,000.

a124.BallandGantsell1/4oftheirpartnershipinteresttoIvesreceiving$200,000each.Atthe timeofadmission,BallandGanteachhada$350,000capitalbalance.Theadmissionof Iveswillcausethenetpartnershipassetsto

a.increaseby$400,000. b.remainat$700,000.

c.decreaseby$400,000. d.remainat$1,100,000.

a125.ColeandGlennselltoNabba1/3interestintheCole-Glennpartnership.Nabbwillpay ColeandGlenneach$70,000foradmissionintotheorganization.Beforethistransaction, ColeandGlennshowcapitalbalancesof$105,000each.Thejournalentrytorecordthe admissionofNabbwill

a.showadebittoCashfor$140,000. b.notshowadebittoCash.

c.showadebittoGlenn,Capitalfor$70,000. d.showacredittoNabb,Capitalfor$140,000.

AccountingforPartnerships 12-21

a126.Foxxinvests$20,000incash(admissionbyinvestment)intheMassey-Dixpartnershipto acquirea1/4interest.Inthiscase

a.theaccountingwillbethesameasapurchaseofaninterest.

b.thetotalnet assets of thenewpartnershipareunchanged fromthepreviouspartnership. c.thetotalcapitalofthenewpartnershipisgreaterthanthetotalcapitaloftheold

partnership.

d.Foxx'sincomeratiowillautomaticallybe1/4.

a127.Whichofthefollowingiscorrectwhenadmittinganewpartnerintoanexisting partnership?

PurchaseofanInterest AdmissionbyInvestment a.Totalnetassets unchanged unchanged

b.Totalcapital increased unchanged c.Totalnetassets unchanged increasedd.Totalcapital unchanged unchanged

a128.Whenadmittinganewpartnerbyinvestment,abonustooldpartners

a.isusuallyunjustifiedbecausebookvaluesclearlyreflectpartnershipnetworth.

b.issometimes justifiedbecause goodwill may exist andit isnot reflected in theaccounts. c.resultsifthedebittocashislessthanthenewpartner'scapitalcredit.

d.resultsifthedebittocashisequaltothenewpartner'scapitalcredit.

a129.Whenadmittinganewpartnerbyinvestment,abonustooldpartnersisallocatedon a.thebasisofcapitalbalances.

b.thebasisoftheoriginalinvestmentoftheoldpartners.

c.thebasisofincomeratiosbeforetheadmissionofthenewpartner. d.asenioritybasis.

a130.Abonustoanewpartner a.isprohibitedbyGAAP.

b.resultswhenthenewpartner'scapitalcreditislessthanhisorherinvestmentof assetsinthefirm.

c.mayoccurwhenrecordedbookvaluesarelowerthanmarketvalues.

d.resultswhenthenewpartner'scapitalcreditisgreaterthanhisorherinvestmentof assetsinthefirm.

a131.Abonustoanewpartnerwill

a.increasethecapitalbalancesofexistingpartnersbasedontheirincomeratiosbefore theadmissionofthenewpartner.

b.increasethecapitalbalancesofexistingpartnersbasedontheirincomeratiosafter theadmissionofthenewpartner.

c.decreasethecapitalbalancesofexistingpartnersbasedontheirincomeratiosbefore theadmissionofthenewpartner.

d.decreasethecapitalbalancesofexistingpartnersbasedontheircapitalbalances beforetheadmissionofthenewpartner.

a132.Jane,Ken,andMarkhavepartnershipcapitalaccountbalancesof$225,000,$450,000 and$105,000,respectively.TheincomesharingratioisJane,50%;Ken,40%;andMark, 10%.Janedesirestowithdrawfromthepartnershipanditisagreedthatpartnership assetsof$195,000willbeusedtopayJaneforherpartnershipinterest.Thebalancesof Ken'sandMark'sCapitalaccountsafterJane'swithdrawalwouldbe

12-22TestBankforAccountingPrinciples,EighthEdition

a.Ken,$450,000;Mark,$105,000. b.Ken,$474,000;Mark,$111,000. c.Ken,$426,000;Mark,$99,000. d.Ken,$435,000;Mark,$90,000.

a133.Ace,Bell,andColehavepartnershipcapitalaccountbalancesof$400,000each.Income andlossesaresharedequally.Coleagreestosellthree-fourthsofhisownershipinterest toAcefor$350,000andone-fourthtoBellfor$125,000.AceandBellwillusepersonal assetstopurchaseCole'sinterest.Thepartnership'sentrytorecordCole'swithdrawal fromthepartnershipwouldbe

a.Cole,Capital....................................................................... 475,000

Cash.......................................................................... 475,000 b.Cole,Capital....................................................................... 475,000

Ace,Capital............................................................... 350,000 Bell,Capital................................................................ 125,000

c.Cole,Capital....................................................................... 400,000

Ace,Capital............................................................... 300,000 Bell,Capital................................................................ 100,000

d.Ace,Capital........................................................................ 356,250 Bell,Capital......................................................................... 118,750

Cole,Capital............................................................. 475,000

a134.Whenapartnerwithdrawsfromthefirm,whichofthefollowingreflectsthecorrect partnershipeffects?

Paymentfrom Paymentfrom Partners'PersonalAssetsPartnershipAssets

a.Totalnetassets decreased decreased b.Totalcapital decreased decreased c.Totalnetassets unchanged decreased d.Totalcapital unchanged unchanged

a135.Whichofthefollowingisnotanecessaryactionthatthepartnershipmusttakeuponthe deathofapartner?

a.Determinethenetincomeornetlossfortheyeartodate. b.Discontinuebusinessoperations.

c.Closethebooks.

d.Preparefinancialstatements.

Usethefollowinginformationforquestions136–138.

OnNovember30,capitalbalancesareGray$90,000,Carr$75,000andMelton$75,000.The incomeratiosare20%,20%and60%,respectively.Graydecidestoretirefromthepartnership.

a136.ThepartnershippaysGray$105,000cashforherpartnershipinterest.AfterGray's retirement,whatisthebalanceof Carr'scapitalaccount?

a.$71,250 b.$72,000 c.$75,000 d.$97,500

AccountingforPartnerships 12-23

a137.ThepartnershippaysGray$75,000cashforherpartnershipinterest.AfterGray's retirement,whatisthebalanceofMelton'scapitalaccount?

a.$66,000 b.$75,000 c.$84,000 d.$86,250

a138.InorderforCarrandMeltontohaveequalcapitalinterestsaftertheretirementofGray, howmuchpartnershipcashwouldhavetobepaidtoGrayforherpartnershipinterest?

a.$0

b.$80,000 c.$90,000

d.AnyamountpaidtoGraywillcauseCarrandMeltontostillhaveequalcapital balances.

AdditionalMultipleChoiceQuestions

139. Allofthefollowingarecharacteristicsofpartnershipsexcept a.co-ownershipofproperty.

b.mutualagency. c.unlimitedlife.

d.association ofindividuals.

140. TheButkus,Sayers,andHalaspartnershipisterminatedwhentheclaimsofcompany creditorsexceedpartnershipassetsby$50,000.ThecapitalbalancesforButkus,Sayers, andHalasare$35,000,$5,000,and$0,respectively.Theoriginalclaimsofthecreditors werenegotiatedbySayersandHalas.Whichpartner(s)is(are)personallyandindividually liableforallpartnershipliabilities?

a.Butkus b.Sayers

c.SayersandHalas

d.Butkus,Sayers,andHalas

141. Whenapartnerinvestsnoncashassetsinapartnership,theassetsshouldberecordedat their

a.bookvalue.

b.carryingvalue.

c.fairmarketvalue. d.originalcost.

142. ThepartnershipagreementofRossiandPetryprovidesforsalaryallowancesof$45,000 toRossiand$35,000toPetry,withtheremainingincomeorlosstobedividedequally. Duringtheyear,RossiandPetryeachwithdrawcashequalto80%oftheirsalary allowances.Ifpartnershipnetincomeis$100,000,Rossi'sequityinthepartnershipwould a.increasemorethanPetry’s.

b.decreasemorethanPetry's.c.increasethesameasPetry's. d.decreasethesameasPetry's.

12-24TestBankforAccountingPrinciples,EighthEdition

143. Whichofthefollowingstatementsiscorrect?

a.Salariestopartnersandinterestonpartners'capitalareexpensesofthepartnership.b.Salariestopartnersareexpensesofthepartnershipbutnotinterestonpartners'

capital.

c.Interestonpartners'capitalisanexpenseofthepartnershipbutnotsalariesto partners.

d.Neithersalariestopartnersnorinterestonpartners'capitalareexpensesofthe partnership.

144. Intheliquidationofapartnership,thegainsandlossesfromassetssoldare a.dividedequallyamongthepartners.

b.dividedamongthepartnersinthestatedincomeratio.

c.dividedamongthepartnersinproportiontotheircapitalequityinterests. d.ignored.

145. Ifapartnerwithacapitaldeficiencyisunabletopaytheamountowedtothepartnership, thedeficiencyisallocatedtothepartnerswithcreditbalances

a.equally.

b.onthebasisoftheirincomeratios.

c.onthebasisoftheircapitalbalances.

d.onthebasisoftheiroriginalinvestments.

146. Anentryisnotrequiredintheliquidationofapartnershiptorecordthe a.paymentofcashtocreditors.

b.distributionofcashtothepartners. c.saleofnoncashassets.

d.allocationofacapitaldeficiencytopartnerswithcreditbalanceswhenthedeficient partnerisexpectedtopaythedeficiency.

147. Thefirststepintheliquidationofapartnershipisto

a.allocateagainorlossonrealizationtothepartners. b.distributeremainingcashtothepartners.

c.paypartnershipliabilities.

d.sellnoncash assetsandrecognizeagainorlossonrealization.

148. BakerjoinsthepartnershipofKubekandMusialbypaying$30,000incash.Ifthenet assetsofthepartnershiparestillthesameamountafterBakerhasbeenadmittedasa partner,thenBaker

a.musthavebeenadmittedbyinvestmentofassets.

b.musthavebeenadmittedbypurchaseofapartner'sinterest. c.musthavereceivedabonusuponbeingadmitted.

d.couldhavebeenadmittedbyaninvestmentofassetsorbyapurchaseofapartner's interest.

149. Loweisadmittedtoapartnershipwitha25%capitalinterestbyacashinvestmentof $120,000.Iftotalcapitalofthepartnershipis$520,000beforeadmittingLowe,thebonus toLoweis

a.$40,000. b.$20,000. c.$60,000. d.$80,000.

BRIEFEXERCISES

BE150

BrandyandJohnsondecidetoorganizeapartnership.Brandyinvests$25,000cash,and Johnsoncontributes$5,000andequipmenthavingabookvalueof$3,500andafairmarket valueof$10,000.

Instructions

Preparetheentrytorecordeachpartner’sinvestment.

BE151

TontoCompanyandRangerCompanydecidetomergetheirproprietorshipsintoapartnership calledWestwardHoCompany.ThebalancesheetofRangerCompanyshows:

AccountsReceivable

Less:Allowancefordoubtfulaccounts

Equipment

Less:Accumulateddepreciation

$15,000

1,500

$20,000

10,000

$13,500

$10,000

Thepartnersagreethatthenetrealizablevalueofthereceivablesis$12,500andthatthefair marketvalueoftheequipmentis$15,000.

Instructions

Indicatehowthefouraccountsshouldappearintheopeningbalancesheetofthepartnership.

BE152

TheJill&FrillCo.reportsnetincomeof$28,000.InterestallowancesareJill$3,000andFrill $5,000;partnersalaryallowancesareJill$18,000andFrill$10,000andtheremainderisshared equally.

Instructions

Indicatethedivisionofnetincometoeachpartner,andpreparetheentrytodistributethenet income.

BE153

DebaugeCo.hadbeginningcapitalbalancesonJanuary1,2008,asfollows:NickFoley$30,000 andTomWenger$25,000.Duringtheyear,drawingswereFoley$15,000andWenger$8,000. Netincomewas$50,000,andthepartnersshareincomeequally.

Instructions

Preparethepartners’capitalstatementfortheyear.

BE154

Afterliquidatingnoncashassetsandpayingcreditors,accountbalancesintheMainCo.areCash $29,000,ACapital(Cr.)$11,000,BCapital(Cr,)$8,000andCCapital(Cr.)$10,000.The partnersshareincomeequally.

Instructions

Journalizethefinaldistributionofcashtothepartners.

BE155

BarnesCompanyatDecember31hascash$40,000,noncashassets$200,000,liabilities $110,000,andthefollowingcapitalbalances:Carpenter$90,000andPendleton$40,000.The firmisliquidated,and$240,000incashisreceivedforthenoncashassets.Carpenterand Pendletonincomeratiosare60%and40%,respectively.

Instructions

Prepareacashdistributionschedule.

BE156

InNelsonCo.,capitalbalancesareOzzie$60,000andHarriet$75,000.Thepartnersshare incomeequally.Dennyisadmittedtothefirmwitha40%interestbyaninvestmentofcashof $65,000.JournalizetheadmissionofDenny.

BE157

BobandKathyarepartnerswhoshareprofits60%and40%.Theircapitalbalanceswereboth $90,000beforeBettywasadmittedtothepartnership.Bettycontributed$120,000incashtothe partnershipfora30%interest.

Instructions

ComputethecapitalbalancesofBobandKathyafterBettyisadmittedtothepartnership.

AccountingforPartnerships 12-29

BE158

CapitalbalancesinJetsonCo.areGeorge$50,000,Jane$38,000,andFrank$25,000.The partnersshareincomeequally.Frankreceives$35,000frompartnershipassetsinwithdrawing fromthefirm.

Instructions

JournalizethewithdrawalofFrank.

BE159

Mike,Andy,andJoearepartnerswhoshareprofits40%,20%,and40%.Theircapitalbalances were$630,000,$420,000,and$210,000,respectively,beforeJoe’sretirement.Joewaspaid $270,000frompartnershipassetstobuyhisinterest.

Instructions

ComputethecapitalbalancesofMikeandAndyafterJoehaswithdrawn.

EXERCISES

Ex.160

DickAcerandGeorgeDooleydecidetoformapartnership.Acerinvests$25,000cashand accountsreceivableof$30,000lessallowancefordoubtfulaccountsof$2,000.Dooley contributes$20,000cashandequipmenthavinga$6,000bookvalue.Itisagreedthatthe allowanceaccountshouldbe$3,000andthefairmarketvalueoftheequipmentis$10,000.

Instructions

Preparethenecessaryjournalentrytorecordtheformationofthepartnership.

Ex.161

KenLottandJimStineoperateseparateautorepairshops.OnJanuary1,2008,theydecideto combinetheirseparatebusinesseswhichwereoperatedasproprietorshipstoformL&SAuto Repair,apartnership.Informationfromtheirseparatebalancesheetsispresentedbelow:

Cash

Accountsreceivable

Allowancefordoubtfulaccounts Accountspayable

Notespayable Salariespayable Equipment

Accumulatedamortization—Equipment

LottAutoRepair $10,000

9,000 1,000 5,000

— 1,000

12,000 2,000

StineAutoRepair $12,000

10,000 500 6,000 3,000 1,500 24,000 4,000

ItisagreedthattheexpectedrealizablevalueofLott'saccountsreceivableis$8,000andStine's receivablesis$7,000.ThefairmarketvalueofLott'sequipmentis$13,000andthevalueof Stine'sequipmentis$20,000.Itisfurtheragreedthatthenewpartnershipwillassumeall liabilitiesoftheproprietorshipswiththeexceptionofthenotespayableonStine'sbalancesheet whichhewillpayhimself.

Instructions

Preparethejournalentriesnecessarytorecordtheformationofthepartnership.

AccountingforPartnerships 12-31

Ex.162

TheSmithandWilsonpartnershipreportsnetincomeof$45,000.Partnersalaryallowancesare Smith$18,000andWilson$12,000.Anyremainingincomeisshared60:40.

Instructions

Determinetheamountofnetincomeallocatedtoeachpartner.

Ex.163

Bass,Ellis,andGorenformedapartnershiponJanuary1,2008.Bassinvested$60,000,Ellis $60,000andGoren$140,000.Basswillmanagethestoreandwork40hoursperweekinthe store.Elliswillwork20hoursperweekinthestore,andGorenwillnotwork.Eachpartner withdrew30percentofhisincomedistributionduring2008.Iftherewasnoincomedistributionto apartner,therewerenowithdrawalsofcash.

Instructions

Computethepartners'capitalbalancesattheendof2008underthefollowingindependent conditions:(Hint:useTaccountstodetermineeachpartner'scapitalbalances.)

Ex.163 (cont.)

(1) Netincomeis$120,000 andtheincomeratioisBass40%,Ellis35%,andGoren25%.

(2) Netincomeis$140,000andthepartnershipagreementonlyspecifiesasalaryof$50,000to Bassand$30,000toEllis.

(3) Netincomeis$86,000andthepartnershipagreementprovidesfor(a)asalaryof$40,000to Bassand$40,000toEllis,(b)interestonbeginningcapitalbalancesattherateof10%,and (c)anyremainingincomeorlossistobesharedbyBass40%,Ellis35%,andGoren25%.

Ex.164

CarlinandLarvehaveapartnershipagreementwhichincludesthefollowingprovisionsregarding sharingnetincomeornetloss:

1.Asalaryallowanceof$54,000toCarlinand$36,000toLarve.

2.Aninterestallowanceof10%oncapitalbalancesatthebeginningoftheyear. 3.Theremaindertobedivided60%toCarlinand40%toLarve.

ThecapitalbalanceonJanuary1,2008,forCarlinandLarvewas$90,000and$120,000, respectively.During2008,theCarlinandLarvePartnershiphadsalesof$495,000,costofgoods soldof$290,000,andoperatingexpensesof$75,000.

Instructions

PrepareanincomestatementfortheCarlinandLarvePartnershipfortheyearendedDecember 31,2008.Asapartoftheincomestatement,includeaDivisionofNetIncometoeachofthe partners.

Ex.165

Hope&CrosbyCo.reportsnetincomeof$34,000.Thepartnershipagreementprovidesfor annualsalariesof$24,000forHopeand$15,000forCrosbyandinterestallowancesof$4,000to Hopeand$6,000toCrosby.Anyremainingincomeorlossistobeshared70%byHopeand 30%byCrosby.

Instructions

Computetheamountofnetincomedistributedtoeachpartner.

Ex.166

TheadjustedtrialbalanceoftheKarrisandWattsPartnershipfortheyearendedDecember31, 2008,appearsbelow:

KARRISANDWATTSPARTNERSHIP AdjustedTrialBalance

FortheYearEndedDecember31,2008

CurrentAssets....................................................................................... PlantAssets.......................................................................................... CurrentLiabilities................................................................................... Long-termDebt..................................................................................... Karris,Capital........................................................................................ Karris,Drawing...................................................................................... Watts,Capital........................................................................................ Watts,Drawing...................................................................................... Sales..................................................................................................... CostofGoodsSold............................................................................... OperatingExpenses..............................................................................

Debit

19,000 80,000

4,000

7,000

62,000

23,000195,000

Credit

7,000 50,000 20,000

18,000

100,000

195,000

Thepartnershipagreementstipulatesthatadivisionofpartnershipnetincomeornetlossistobe madeasfollows:

1.Asalaryallowanceof$12,000toKarrisand$23,000toWatts. 2.Theremainderistobedividedequally.

Instructions

(a) Prepareaschedulewhichshowsthedivisionofnetincometoeachpartner.

(b) Preparetheclosingentriesforthedivisionofnetincomeandforthedrawingaccountsat December31,2008.

Ex.167

KimCareyandMaryHallhaveformedtheCHPartnership,andhavecapitalbalancesof $130,000and$100,000,respectively,onJanuary1,2008.OnJune1,2008,Hallinvestedan additional$30,000.Alsoduringtheyear,Careywithdrew$60,000andHallwithdrew$48,000. Salesfortheyearamountedto$360,000andexpenseswere$260,000.CareyandHallshare incomeandlossesona3:1basis.

Instructions

(a) PreparetheclosingentriesatDecember31,2008,fortheCHPartnership. (b) Prepareapartners'capitalstatementfor2008.

Ex.168

Prepareapartners'capitalstatementforCrestwoodCompanybasedonthefollowinginformation.

Crest Wood

Beginningcapital $30,000 $27,000 Drawingsduringyear 15,000 8,000

Netincomewas$35,000,andthepartnersshareincome60%toCrestand40%toWood.

Ex.169

OnDecember31,ThompsonCompanyhascash$30,000,noncashassets$150,000,and liabilities$80,000.CapitalbalanceswereTerry$55,000andNott$45,000.Thefirmisliquidated, andthenoncashassetsaresoldfor$125,000.TerryandNottshareincomeina60:40ratio.

Instructions

Prepareentriestorecord(a)thesaleofnoncashassetsand(b)theallocationofthegain(loss) onliquidationtothepartners.

AccountingforPartnerships 12-37

Ex.170

TheABCPartnershipistobeliquidatedandyouhavebeenhiredtoprepareaScheduleofCash Paymentsforthepartnership.PartnersA,B,andCshareincomeandlossesintheratioof4:3:3, respectively.Assumethefollowing:

1.Thenoncashassetsweresoldfor$75,000. 2.Liabilitieswerepaidinfull.

3.Theremainingcashwasdistributedtothepartners.(Ifanypartnerhasacapital deficiency,assumethatthepartnerisunabletomakeupthecapitaldeficiency.)

Instructions

Usingtheaboveinformation,completetheScheduleofCashPaymentsbelow:

ABCPARTNERSHIP ScheduleofCashPayments

Item Cash+ Balancesbefore

liquidation 25,000+

Noncash

Assets=

150,000=

Liabilities+

50,000 +

A Capital+

25,000+

B Capital+

35,000+

C Capital

65,000

Ex.171

TheODSPartnershipistobeliquidatedwhentheledgershowsthefollowing:

Cash

NoncashAssets Liabilities

Oslo,Capital Decker,Capital Silas,Capital

$50,000 200,000 50,000 75,000 100,000 25,000

Oslo,Decker,andSilas'incomeratiosare6:3:1,respectively.

Instructions

Prepareseparateentriestorecordtheliquidationofthepartnershipassumingthatthenoncash assetsare soldfor$150,000incash.

Ex.172

Priortothedistributionofcashtothepartners,theaccountsofABCCompanyare:Cash $30,000,AltCapital(Dr.)$10,000,BellCapital(Cr.)$25,000,andColeCapital(Cr.)$15,000. Theyshareincomeona5:3:2basis.

Instructions

Prepareentriestorecord(a)theabsorptionofAlt'scapitaldeficiencybytheotherpartnersand (b)thedistributionofcashtothepartnerswithcreditbalances.

AccountingforPartnerships 12-39

Ex.173

TheGFPartnershipisliquidatedwhentheledgershows:

Cash

NoncashAssets Liabilities

Grant,Capital Fleming,Capital

$60,000 90,000 44,000 100,000 6,000

GrantandFleming'sincomeratiosare3:2,respectively.

Instructions

Prepareascheduleofcashpayments,assumingthatthenoncashassetsweresoldfor$70,000. Assumethatanypartner’scapitaldeficienciescannotbepaidtothepartnership.

Ex.174

TheHowellandParksPartnershiphaspartnercapitalaccountbalancesasfollows:

Howell,Capital Parks,Capital

$550,000 250,000

Thepartnersshareincomeandlossesintheratioof60%toHowelland40%toParks.

Instructions

PreparethejournalentryonthebooksofthepartnershiptorecordtheadmissionofTylerasa newpartnerunderthefollowingthreeindependentcircumstances.

1.Tylerpays$350,000toHowelland$150,000toParksforone-halfofeachoftheirownership interestinapersonaltransaction.

2.Tylerinvests$850,000inthepartnershipforaone-thirdinterestinpartnershipcapital. 3.Tylerinvests$175,000inthepartnershipforaone-thirdinterestinpartnershipcapital.

Ex.175

Key,Riser,andStoneshareincomeona6:3:1basis.Theyhavecapitalbalancesof$80,000, $60,000,and$45,000,respectively,whenHortonisadmittedtothepartnership.

Instructions

PreparethejournalentrytorecordtheadmissionofHortonintothepartnershipifHorton purchasesone-halfofKey'sequityfor$45,000;one-halfofRiser'sequityfor$22,000;andone-thirdofStone'sequityfor$18,000.

Ex.176

TomRosenandJoeFinneysharepartnershipincomeona3:2basis.Theyhavecapitalbalances of$560,000and$280,000,respectively,whenEdVannisadmittedtothepartnership.

Instructions

PreparethejournalentrytorecordtheadmissionofVannundereachofthefollowing assumptions:

(a)Vanninvests$340,000fora25%ownershipinterest. (b)Vanninvests$200,000fora25%ownershipinterest.

(c)Vanninvestsanamountthatgiveshima25%ownershipinterest.

Ex.177

CindyMillsandAmyPetershavecapitalaccountsof$480,000and$420,000,respectively.Bill DennyandMarkMorganaretojointhepartnership.Dennyinvests$450,000inthepartnership forwhichhereceivesacapitalcreditof$450,000.Morganpurchasesaone-halfinterestfrom Millsfor$300,000andaone-fourthinterestfromPetersfor$90,000.

Instructions

(a) PreparethejournalentriestorecordtheadmissionofDennyandMorgantothepartnership.

(b) DeterminethecapitalbalancesofthepartnersaftertheadmissionofDennyandMorgan.

AccountingforPartnerships 12-43

Ex.178

Adel,Gaines,andYockeyshareincomeandlossesinaratioof3:2:5,respectively.Thecapital accountbalancesofthepartnersareasfollows:

Adel,Capital Gaines,Capital Yockey,Capital

$600,000 360,000 240,000

Instructions

PreparethejournalentryonthebooksofthepartnershiptorecordthewithdrawalofYockey underthefollowingindependentcircumstances:

1.ThepartnersagreethatYockeyshouldbepaid$280,000bythepartnershipforhisinterest. 2.ThepartnersagreethatYockeyshouldbepaid$180,000bythepartnershipforhisinterest.

3.AdelagreestopayYockey$180,000forone-halfofhiscapitalinterestandGainesagreesto payYockey$180,000forone-halfofhiscapitalinterestinapersonaltransactionamongthe partners.

Ex.179

Dixon,Larsen,andPolleyhavecapitalbalancesof$150,000,$100,000,and$75,000, respectively,andtheirincomeratiosare4:2:4.

Instructions

RecordthewithdrawalofPolleyfromthepartnershipundereachofthefollowingassumptions: 1.Polleyispaid$75,000frompartnershipassets.

2.Polleyispaid$90,000frompartnershipassets. 3.Polleyispaid$55,000frompartnershipassets.

COMPLETIONSTATEMENTS

180.The______________Actprovidesthebasicrulesfortheformationandoperationof partnershipsinmorethan90%ofthestates.

181.Apartnershipcharacteristicwhichenableseachpartnertoactonbehalfofthepartnership whenengaginginpartnershipbusinessiscalled______________.

182.Amajordisadvantageofthepartnershipformoforganizationis______________,which makeseach partnerpersonallyandindividuallyliableforallpartnershipliabilities.

183.Thecapitalaccountsindicateeachpartner's______________investment,whilethe partner'sdrawingaccountsare______________owner'sequityaccounts.

184.The______________ratiospecifiesthebasisforsharingincomeandlosses.

185.Anincomeratiobasedon______________balancesmaybeappropriatewhenthe amountoffundsinvestedinthepartnershipiscriticaltothepartnership.

186.A______________allowanceor______________onpartners'capitalaccountsarenot expensesofthepartnershipwhentheyarespecifiedasthebasisforsharingincomeand losses.

187.Inliquidatingapartnership,itisnecessarytoconvert______________intocashandto allocateany______________or______________tothepartnersbasedontheirincome ratios.

188.Adebitbalanceinapartner'scapitalaccountiscalleda_____________.

a189.Anewpartnermaybeadmittedtothepartnershipby______________theinterestofan existingpartner,orby______________assetsinthepartnership.

a190.Whenanewpartner'scapitalinterestonthedateofadmittanceislessthanhisorher investmentinthefirm,a______________resultsforthe______________partner(s).

a191.Ifabonusisgiventoanewpartner,theoldpartners'capitalaccountsaredecreased basedontheir______________ratiopriortotheadmissionofthenewpartner.

MATCHING

192.Matchtheitemsbelowbyenteringtheappropriatecodeletterinthespaceprovided.

A. MutualagencyB. Unlimitedliability

C.Partnershipagreement D.Incomeratio

E. Partners'capitalstatement F. Admissionbyinvestment

G. Purchaseofaninterest H. Partnershipliquidation

I. Capitaldeficiency

J. Distributionofcashtopartnersin liquidationofapartnership.

____ 1.Eachpartnerispersonallyandindividuallyliableforpartnershipdebts.

____ 2.Madeonbasisofpartners'capitalbalances.

____ 3.Explainschangesinindividualpartner'scapitalaccountsduringaperiod.

____ 4.Eachpartnercanbindthepartnershipsolongastheactionappearstobeappropriate forthepartnership.

____ 5.Businessterminates.

____a6.Resultsinanincreaseintotalnetassetsandtotalcapitalofthepartnership.

____ 7.Capitalaccountwithadebitbalance.

____ 8.Thebasisforsharingincomeandlosses.

____a9.Totalnetassetsandtotalcapitalofthepartnershipdonotchange.

____10.Writtenorverbalcontractestablishingdutiesandresponsibilitiesofpartners.

SHORT-ANSWERESSAYQUESTIONS

S-AE193

Identifyandexplaintheprincipal characteristicsofthepartnershipformofbusinessorganization.

S-AE194

Apartnershipisliquidatedbysellingthenon-cashassets,payingthecreditorsinfull,and distributingtheremainingassetstothepartners.Explainwhygainsandlossesontherealization ofnon-cashassetsaredistributedtothepartnersbasedontheirincomeratios,whereascashis distributedtothepartnersbasedontheirequityasshownintheircapitalaccounts.Whateffects doesthepaymentornonpaymentofacapitaldeficiencyhaveonthedistributionofcashtothe partners?

S-AE195(Ethics)

Threedoctors,FrankWhite,MarkRosen,andSteveJenner,openedafamilymedicineclinic.All threedoctorshadbeenlifelongfriends.Allbelongedtothesamereligiousfaith.Allwerevery activeinchurchaffairs,andtriedtomoldtheirprofessionalbehaviortotheirreligiousbeliefs.

Aboutayearago,Dr.Whiteannouncedthathewasleavingthechurch.Theothersnoticedthat hispersonalityalsobegantochange.Hebegantodressinflamboyantstyles,andhestarted wearingexpensive-lookingjewelry.Histemperbecameunstable—oneminutehewascalm,and thenext,hemightbethrowingchartsdownthehallandscreaming.Hestartedcomingtothe officelate,andforgettingtoseesomeofhispatientsbeforeheleftagain.Theothertwoatfirst werestunnedatthechanges.Hiswifeaskedthemwhethertheythoughthemighthaveadrinking problem.Afterfinallydecidingtoinvestigate,theyfoundwhatlookedtothemlikealargeamount ofcocaine,(hundredsofplasticsacksofwhitepowder)tuckedawayinboxesofoldmedical equipment.

Frightened,Drs.RosenandJennerdecidedtoactquickly.Theirpartnershipagreementsaid nothingaboutdissolvingthepartnership—onlyaboutwhattodoifoneofthemdied.They thereforesecretlyrentedofficespaceacrosstownandbegantomovethemostnecessary equipmentandsuppliestothenewoffice.Amonthlater,theychangedthelocksontheoldoffice andbeganseeingpatientsinthenewofficewithoutanynoticetoDr.Whiteatall.Dr.White simplycameinataroundteno'clockasusual,andfoundhimselflockedoutofanemptyoffice.

Required:

DidDrs.RosenandJenneractethicallyintheirendingofthepartnership?Explain.

S-AE196(Communication)

MattJonesandJerryWatsonbegandetailworkonautomobilesasahobby.First,theyuseda mail-orderkittoadd"pinstriping"totheirowncars,a1968Mustanganda1970GTOJudge, respectively.ThenMattaddedmoreflourishes,includinghisname.Jerrypracticedpainting flamesonhisJudge.Gradually,theircarsbecamerecognizedaroundtownandothersbeganto askthemtoaddaflourishhereortheretotheircars.Theyweretalkedintoattendinga"muscle car"showinanearbylargecitytoshowofftheircars.Theyhadmorerequestsforworkthanthey couldhandle.Now,theyareconsideringquittingtheirotherjobsandmakingthisapermanent business.Jerry,forexample,turnsdownmorejobsthanheacceptsandstillgetsmorerequests everyweek.

S-AE196(cont.)

MattandJerryareunsurehowtoproceed.Theyliketheideaofapartnership,buttheyonlyknow theyworkwelltogether—thingslikehowtosplitpaymenthavejustbeensettledindividuallyfor eachjob,dependingonwhichonedidmorework.Matt'sfathersuggestsawrittenpartnership agreement.Mattdisagrees.Hebelievesthatitwillspoilthewholearrangementbyreducingitto words.

Required:

WriteabriefnotetoMattexplainingwhyheneedsapartnershipagreement.

#ACC 206 Week 4 Quiz – Strayer

0 notes