Test bank advanced financial accounting CH15 partnership

I minus II minus III In the ABC partnership to which Daniel seeks admittance, the capital balances of Albert,Bert, and Connell, who share income in the ratio of 5:3:2 are: 3.. $100,000 J

Partnerships: Formation, Operation, and Changes in MembershipMultiple Choice Questions

2 A partner's tax basis in a partnership is comprised of which of the following items?

I The partner's tax basis of assets contributed to the partnership

II The amount of the partner's liabilities assumed by the other partners

III The partner's share of other partners' liabilities assumed by the partnership

A I plus II minus III

B I plus II plus III

C I minus II plus III

D I minus II minus III

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

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

A $400,000

B $200,000

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

A $0

B $10,000

C $50,000

D $100,000

Jones and Smith formed a partnership with each partner contributing the following items:

Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed

by the Jones and Smith partnership

5 Refer to the above information What is each partner's tax basis in the Jones and Smithpartnership?

A Option A

B Option B

C Option C

D Option D

6 Refer to the above information What is the balance in each partner's capital account forfinancial accounting purposes?

A Option A

B Option B

C Option C

D Option D

7 Griffin and Rhodes formed a partnership on January 1, 2009 Griffin contributed cash of

$120,000 and Rhodes contributed land with a fair value of $160,000 The partnershipassumed the mortgage on the land which amounted to $40,000 on January 1 Rhodesoriginally paid $90,000 for the land On July 31, 2009, the partnership sold the land for

$190,000 Assuming Griffin and Rhodes share profits and losses equally, how much of thegain from sale of land should be credited to Griffin for financial accounting purposes?

9 Which of the following accounts could be found in the PQ partnership's general ledger?

D I, II, and III

10 The DEF partnership reported net income of $130,000 for the year ended December 31,

2008 According to the partnership agreement, partnership profits and losses are to bedistributed as follows:

How should partnership net income for 2008 be allocated to D, E, and F?

A Option A

B Option B

C Option C

D Option D

11 The JPB partnership reported net income of $160,000 for the year ended December 31,

2008 According to the partnership agreement, partnership profits and losses are to be

The APB partnership agreement specifies that partnership net income be allocated as follows:

Average capital balances for the current year were $50,000 for A, $30,000 for P, and $20,000for B

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

14 RD formed a partnership on February 10, 2009 R contributed cash of $150,000, while Dcontributed inventory with a fair value of $120,000 Due to R's expertise in selling, D agreedthat R should have 60 percent of the total capital of the partnership R and D agreed to

recognize goodwill What is the total capital of the RD partnership and the capital balance of

R after the goodwill is recognized?

16 Refer to the above information Which statement below is correct if a new partner receives

a bonus upon contributing assets into the partnership?

A B < A and D = C - A

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

19 Refer to the above information Which statement below is correct if a new partner

purchases an interest in capital directly from the old partners?

21 When a partnership is formed, noncash assets contributed by partners should be recorded:

I at their respective book values for income tax purposes

II at their respective fair values for financial accounting purposes

A I only

B II only

22 When a new partner is admitted into a partnership and the new partner receives a capitalcredit less than the tangible assets contributed, which of the following explains the difference?

I The new partner's goodwill has been recognized

II The old partners received a bonus from the new partner

I The old partners' goodwill is being recognized

II The new partner's goodwill is being recognized

I Undervalued liabilities were written up to their fair values

II Undervalued assets were written up to their fair values

I The retiring partner is receiving a bonus from the other partners

II The retiring partner's goodwill is being recognized

A I only

B II only

26 When the old partners receive a bonus upon admission of a new partner into a partnership,the bonus is allocated to:

I all the partners in their profit and loss sharing ratio

II the existing partners in their profit and loss sharing ratio

A I only

B II only

C Either I or II

D Neither I nor II

27 When a new partner is admitted into a partnership and the old partners' goodwill is

recognized, the goodwill is allocated to:

I all the partners in their profit-and-loss-sharing ratio

II the old partners in their profit and loss sharing ratio

of the following questions is independent of the others

28 Refer to the above information Tiffany is paid $60,000, and no goodwill is recorded Inthe journal entry to record Tiffany's withdrawal:

A Tiffany, Capital will be credited for $60,000

B Ron, Capital will be debited for $5,000

C Stella, Capital will be debited for $4,000

D Cash will be debited for $60,000

29 Refer to the above information Tiffany is paid $60,000, and no goodwill is recorded.What is the Ron's capital balance after Tiffany withdraws from the partnership?

A $74,000

B $71,000

30 Refer to the above information Tiffany is paid $56,000, and all implied goodwill isrecorded What is the total amount of goodwill recorded?

31 Refer to the information provided above What amount will David have to invest to givehim one-fifth percent interest in the capital of the partnership if no goodwill or bonus isrecorded?

one-A a credit to cash for $50,000

B a debit to goodwill for $7,500

C a credit to David, Capital for $60,000

D a credit to David, Capital for $50,000

33 Refer to the information provided above Allen and Daniel agree that some of the

inventory is obsolete The inventory account is decreased before David is admitted Davidinvests $40,000 for a one-fifth interest What is the amount of inventory written down?

A $4,000

B $20,000

34 Refer to the information provided above Allen and Daniel agree that some of the

inventory is obsolete The inventory account is decreased before David is admitted Davidinvests $40,000 for a one-fifth interest What are the capital balances of Allen and Daniel afterDavid is admitted into the partnership?

A Option A

B Option B

C Option C

D Option D

37 Refer to the information provided above David invests $40,000 for a one-fifth interest inthe total capital of $220,000 The journal to record David's admission into the partnership willinclude:

A a credit to Cash for $40,000

B a debit to Allen, Capital for $3,000

C a credit to David, Capital for $40,000

D a credit to Daniel, Capital for $1,000

38 Refer to the information provided above David invests $40,000 for a one-fifth interest inthe total capital of $220,000 What are the capital balances of Allen and Daniel after David isadmitted into the partnership?

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

A It elects to be taxed in the same manner as a corporation

B It does not have the burden of double taxation of corporate income

C Its shareholders have personal liability for the corporation's obligations

D Its primary income source should be passive investments

41 A limited liability company (LLC):

I is governed by the laws of the state in which it is formed

II provides liability protection to its investors

III does not offer pass-through taxation benefits of partnerships

A Both I and III

A goodwill to the new partner if B > (A + C) and D < C

B goodwill to the old partners if B = A + C and D > C

C a bonus to the new partner if B = A + C and D > C

D neither bonus nor goodwill if B > (A + C) and D > C

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

$140,000 Partnership net income for the year was:

A $120,000

B $300,000

C $500,000

D $600,000

45 Shue, a partner in the Financial Brokers Partnership, has a 30 percent share in partnershipprofits and losses Shue's capital account had a net decrease of $100,000 during 2008 During

2008, Shue withdrew $240,000 as withdrawals and contributed equipment valued at $50,000

to the partnership What was the net income of the Financial Brokers Partnership for 2008?

A $633,334

B $466,666

C $300,000

D $190,000

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

A the partner's share of the profits and losses of the partnership

B the right to receive distributions

C the right to receive any liquidating distribution

D the authority to transact any of the partnership's business operations

Essay Questions

47 Net income for Levin-Tom partnership for 2009 was $125,000 Levin and Tom haveagreed to distribute partnership net income according to the following plan:

Additional Information for 2009 follows:

1 Levin began the year with a capital balance of $75,000

2 Tom began the year with a capital balance of $100,000

3 On March 1, Levin invested an additional $25,000 into the partnership

4 On October 1, Tom invested an additional $20,000 into the partnership

5 Throughout 2009, each partner withdrew $200 per week in anticipation of partnership netincome The partners agreed that these withdrawals are not to be included in the computation

of average capital balances for purposes of income distributions

Required:

a Prepare a schedule that discloses the distribution of partnership net income for 2009 Showsupporting computations in good form

b Prepare the statement of partners' capital at December 31, 2009

c How would your answer to part a change if all of the provisions of the income distributionplan were the same except that the salaries were $45,000 to Levin and $60,000 to Jack?

48 Paul and Ray sell musical instruments through their partnership To bring in additionalfunds and expertise, they decide to admit Janet to the partnership Paul's capital is $400,000,Ray's capital is $200,000, and they share income in a ratio of 7:3, respectively.

Required

Record Janet's admission for each of the following independent situations:

a) Janet invests $180,000 for a one-fourth interest Goodwill is to be recorded

b) Paul and Ray agree that some of the inventory is obsolete The inventory account isdecreased before Janet is admitted Janet invests $190,000 for a one-fourth interest

49 Two sole proprietors, L and M, agreed to form a partnership on January 1, 2009 The trialbalance for each proprietorship is shown below as of January 1, 2009.

The LM partnership will take over the assets and assume the liabilities of the proprietors as ofJanuary 1, 2009

50 The PQ partnership has the following plan for the distribution of partnership net income(loss):

Required:

Calculate the distribution of partnership net income (loss) for each independent situationbelow (for each situation, assume the average capital balance of P is $140,000 and of Q is

$240,000)

1 Partnership net income is $360,000

2 Partnership net income is $240,000

3 Partnership net loss is $40,000

51 Miller and Davis, partners in a consulting business, share profits and losses in the ratio of3:2, respectively Prior to recording the admission of Shaw as a new partner, Miller has acapital balance of $80,000, and Davis has a capital balance of $40,000.

Required:

For each of the following independent cases, prepare the journal entry that was made torecord the admission of Shaw into the partnership

1) Shaw purchased 20 percent of the respective capital balances of Miller and Davis, paying

$20,000 cash directly to each of them

2) Shaw invested $30,000 cash in the partnership for a 20 percent ownership interest Totalcapital after recording his admission was $150,000

3) Shaw invested $40,000 cash into the partnership for a 20 percent ownership interest Totalcapital after recording his admission was $160,000

4) Shaw invested $50,000 into the partnership for a 20 percent interest Goodwill is to berecognized

52 In the JAW partnership, Jane's capital is $100,000, Anne's is $80,000, and William's is

$75,000 They share income in a 3:2:1 ratio, respectively William is retiring from the

partnership

Required

Prepare journal entries to record William's withdrawal according to each of the followingindependent assumptions:

a William is paid $80,000, and no goodwill is recorded

b William is paid $85,000, and only his share of the goodwill is recorded

c William is paid $78,000, and all implied goodwill is recorded

53 Apple and Betty are planning on beginning a new business They plan on forming apartnership Apple will contribute $300,000 and will not be working Betty will be workingfull time They plan on splitting profits equally They approach you, as an accounting major,

to confirm their thoughts What do you recommend?

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

Chapter 15 Partnerships: Formation, Operation, and Changes in Membership

2 A partner's tax basis in a partnership is comprised of which of the following items?

I The partner's tax basis of assets contributed to the partnership

II The amount of the partner's liabilities assumed by the other partners

III The partner's share of other partners' liabilities assumed by the partnership

A.I plus II minus III

B.I plus II plus III

C I minus II plus III

D.I minus II minus III

AACSB: Reflective Thinking

AICPA: Decision Making

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

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

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

AICPA: Decision Making

Jones and Smith formed a partnership with each partner contributing the following items:

Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed

by the Jones and Smith partnership

5 Refer to the above information What is each partner's tax basis in the Jones and Smithpartnership?

A Option A

B.Option B

C.Option C

D.Option D

6 Refer to the above information What is the balance in each partner's capital account forfinancial accounting purposes?

7 Griffin and Rhodes formed a partnership on January 1, 2009 Griffin contributed cash of

$120,000 and Rhodes contributed land with a fair value of $160,000 The partnershipassumed the mortgage on the land which amounted to $40,000 on January 1 Rhodesoriginally paid $90,000 for the land On July 31, 2009, the partnership sold the land for

$190,000 Assuming Griffin and Rhodes share profits and losses equally, how much of thegain from sale of land should be credited to Griffin for financial accounting purposes?

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

A.Option A

B.Option B

C.Option C

D Option D

AACSB: Reflective Thinking

AICPA: Decision Making

9 Which of the following accounts could be found in the PQ partnership's general ledger?

D I, II, and III

AACSB: Reflective Thinking

AICPA: Decision Making

10 The DEF partnership reported net income of $130,000 for the year ended December 31,

2008 According to the partnership agreement, partnership profits and losses are to bedistributed as follows:

How should partnership net income for 2008 be allocated to D, E, and F?

11 The JPB partnership reported net income of $160,000 for the year ended December 31,

2008 According to the partnership agreement, partnership profits and losses are to be

The APB partnership agreement specifies that partnership net income be allocated as follows:

Average capital balances for the current year were $50,000 for A, $30,000 for P, and $20,000for B