ACC 206 Accounting Principles II Week 4 Quiz

7/25/2019 ACC 206 Accounting Principles II Week 4 Quiz

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ACC 206 Week 4 Quiz – Strayer

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C.AP/1 S/37 B8C/*9S

1. Identify the characteristics of the partnership form of businessorganization.

2. Explain the accounting entries for the formation of a partnership.

3. Identify the bases for dividing net income or net loss.

4. Describe the form and content of partnership financial statements.

5. Explain the effects of the entries to record the liquidation of a

partnership.

6. Explain the effects of the entries when a new partner is admitted.

7. Describe the effects of the entries when a partner withdraws from the

firm.

/13(5ALS S/A/"/S

1. The personal assets, liabilities, and personal transactions of partners

are excluded from the accounting records of the partnership.

2. The act of any partner is binding on all other partners if the act

appears to be appropriate for the partnership.

3. ma!or ad"antage of the partnership form of organi#ation is that

the partners ha"e unlimited liability.

4. $artnership creditors may ha"e a claim on the personal assets of any of

the partners if the partnership assets are not sufficient to settle claims.

5. The partnership agreement bet%een partners must be in %riting.

6. &f a partner in"ests noncash assets in a partnership, they should be

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recorded by the partnership at their fair mar'et "alue.

7. (. )ill in"ests the follo%ing assets in a ne% partnership* +15, in

cash, and e-uipment that cost +3, but has a boo' "alue of

+17, and fair mar'et "alue of +2,. )ill, apital %ill be

credited for +32,.

/. T%o proprietorships cannot combine and form a partnership.

0. &f a partners in"estment in a partnership consists of e-uipment

that has accumulated depreciation of +/,, it %ould not be

appropriate for the partnership to record the accumulated

depreciation.

1. &f a partners in"estment in a partnership consists of ccounts

ecei"able of +25, and an llo%ance for oubtful ccounts of

+7,, it %ould not be appropriate for the partnership to record

the llo%ance for oubtful ccounts.

11. nless stated other%ise in the partnership contract, profits and losses

are shared among the partners in the ratio of their capital e-uity

balances.

12. &f salary allo%ances and interest on capital are stipulated in the

partnership profit and loss sharing agreement, they are implemented

only if income is sufficient to co"er the amounts re-uired by these

features.

13. nless the partnership agreement specifically indicates an income

ratio, partnership net income or loss is not allocated to the partners.

ccounting for$artnerships

-2 ( :

14. $artnership income or loss need not be closed to partners capital

accounts each period because of the unlimited life characteristic of

partnerships.

15. &f a partnership has a loss for the period, the closing entry to transfer

the loss to the partners %ill re-uire a credit to the &ncome ummary

account.

16. The partners dra%ing accounts are closed each period into the

&ncome ummary account.

17. alary allo%ances to partners are a ma!or expense on most

partnership income statements.

1/. n interest allo%ance in sharing partnership net income or net loss



is related to the amount of partners in"ested capital during the period.

10. The financial statements of a partnership are similar to those of a proprietorship.

2. The income earned by a partnership %ill al%ays be greater than theincome earned by a proprietorship because in a partnership there is more

than one o%ner contributing to the success of the business.

21. The function of the $artners apital tatement is to explain the

changes in partners capital account balances during a period.

22. detailed listing of all the assets in"ested by a partner in a partnership

appears on the $artners apital tatement.

23. Total partners e-uity of a partnership is e-ual to the sum of all

partners capital account balances.

24. The distribution of cash to partners in a partnership li-uidation is

al%ays made based on the partners income sharing ratio.

25. The li-uidation of a partnership means that a ne% partner has been

admitted to the partnership.

a26. The admission of a ne% partner results in the legal dissolution of the

existing partnership and the beginning of a ne% partnership.

a27. &f a ne% partner is admitted into a partnership by in"estment, the total

assets and total capital %ill change.

a2/. bonus to old partners results %hen the ne% partners capital credit

on the date of admittance is greater than his or her in"estment in the

firm.

a20. &f a ne% partner in"ests in a partnership at boo' "alue and ac-uires a 184

interest in total partnership capital, it indicates that a bonus %as paid to

the original partners.

a3. bonus to the remaining partners results %hen a retiring partner

recei"es partnership assets %hich are less than his or her capital balance

on the date of %ithdra%al.

A!! i tio n al /rue(5a l se Q u est i ons

31. partnership is an association of no more than t%o persons to carry on

as co9o%ners of a business for profit.

32. :nce assets ha"e been in"ested in the partnership, they are o%ned !ointly byall partners.



33. ;ach partners initial in"estment in a partnership should be recorded at boo'"alue.

34. $artnership income is shared in proportion to each partners capital

e-uity interest unless the partnership contract specifically indicates themanner in %hich net income or net loss is to be di"ided.

35. &n a li-uidation, the final distribution of cash to partners should be

on the basis of their income ratios.

a36. &n an admission of a partner by in"estment of assets, the total net assets

and total capital of the partnership do not change.

a37. The %ithdra%al of a partner legally dissol"es the partnership.

"3L/*PL C.*C Q3S/*S

3/. hybrid form of business organi#ation %ith certain features li'e

a corporation is an a. limited liability partnership.

b.

limited

liability

company.

c. <<

corporatio

n.

d. sub9chapter << corporation.

30. partnership

a. has only one o%ner.

b. pays taxes on

partnership income.

c. must file aninformation tax

return.

d. is not an accounting entity for financial reporting purposes.

4. general partner in a partnership

a. has unlimited liability for

all partnership debts. b. is

al%ays the general manager of

the firm.

c. is the partner %ho lac's a speciali#ation.

d. is liable for partnership liabilities only to the extent of that partners capitale-uity.




-2 ( ;

41. The indi"idual assets in"ested by a partnerin a partnership a. re"ert bac' to that

partner if the partnership li-uidates.

b. determine that partners share of net income or

loss for the year. c. are !ointly o%ned by all

partners.

d. determine the scope of authority of that partner.

42. =hich one of the follo%ing %ould not be considered a disad"antage of

the partnership form of organi#ation>

a. (imited life

b.

nli

mite

d

liabil

ity c.

?utu

al

agen

cy

d. ;ase of formation

43. The partnership form of business is

a. restricted to la% and medical practices.

b. restricted to firms ha"ing fe%er

than 1 partners. c. not restricted to

any particular type of business. d.

most often used in relati"ely large

companies.

44. =hich of the follo%ing is not a principal characteristic of the partnership

form of business organi#ation>

a. ?utual agency

b.

ssociation

of indi"iduals

c. (imited

liability

d. (imited life

45. The partnership agreement should include each of the

follo%ing except the a. date of the partnership inception. b. principal location of the firm.



c. sur"i"ing family members in the e"ent of a

partners death. d. ;ach of these should be

included.

46. =hich of the follo%ing statements is true regarding the form of a

legally binding partnership contract>a. The partnership contract must be in %riting.

b. The partnership contract may be based on

a handsha'e. c. The partnership contract

may be implied.

d. The partnership contract cannot be oral.

47. =hich of the follo%ing statements about a partnership is correct>

a. The personal assets of a partner are included in the partnership

accounting records. b. partnership is not re-uired to file an

information tax return.c. ;ach partners share of income is taxable to the partnership.

d. partnership represents an accounting entity for financial reporting purposes.

4/. &n a partnership, mutual agency means

a. each partner acts on his o%n behalf %hen engaging in partnership business.

b. the act of any partner is binding on all other partners, only if partners

act %ithin their cope of authority.

c. an act by a partner is !udged as binding on other partners depending

on %hether the act appears to be appropriate for the partnership.

d. that partners must pay taxes on a mutual or combined basis.-2 ( < /est Bank =or Accountin) Princi#les> i)hth !ition

40. partnership

a. is dissol"ed only by the %ithdra%al of a partner.

b. is dissol"ed upon the acceptance

of a ne% partner. c. dissolution

means the business must li-uidate.

d. has unlimited life.

5. The partner in a limited partnership that has unlimited liability

is referred to as the a. lead partner.

b. head partner.

c.

ge

ner

al

par

tne

r.

d.

unlimi



ted

par

tne

r.

51. (imited partnershipsa. must ha"e at least one general partner.

b. guarantee that a partner %ill recei"e a return.

c. guarantee that a partner %ill get bac' his

original in"estment. d. are limited to only

three partners.

52. The ?aris9rane partnership is terminated %hen creditor claims

exceed partnership assets by +4,. rane is a millionaire and

?aris has no personal assets. ?aris partnership interest is 75@ and

ranes is 25@. reditorsa. must collect their claims e-ually

from ?aris and rane. b. may collect

the entire +4, from rane.

c. must collect their claims 75@ from ?aris and 25@ from rane.

d. may not re-uire rane to use his personal assets to satisfy the +4, inclaims.

53. =hich of the follo%ing statements about

partnerships is incorrect? a. $artnership assets

are co9o%ned by partners.

b. &f a partnership is terminated, the assets do not legally re"ert to theoriginal contributor. c. &f the partnership agreement does not specify

the manner in %hich net income is to be

shared, it is distributed according to capital contributions.

d. ;ach partner has a claim on assets e-ual to the balance in the

partners capital account.

54. =hich of the follo%ing is not an ad"antage of the

partnership form of business> a. ?utual agency

b. ;ase of formation

c. ;ase of decision ma'ingd. Areedom from go"ernmental regulations and restrictions

55. The largest companies in the nited tates are

primarily organi#ed as a. limited partnerships.

b

.

p

a

r

tn



e

r

s

h

i

ps

.

c

.

c

o

r

po

r

a

t

i

o

n

s

.

d. proprietorships.

56. The basis for di"iding partnership net income or net loss is referred

to as any of the follo%ing except the

a. income ratio.

b.

income

and

loss

ratio. c.

profit

andloss

ratio.

d.

income

sharing

ratio.


-2 ( ?



57. =hich of the follo%ing statements is incorrect regarding

partnership agreements> a. &t may be referred to as the Barticles

of co9partnership.C

b. :ral agreements are preferable to %ritten articles.

c. &t should specify the different relationships that are to exist

among the partners. d. &t should state procedures for submittingdisputes to arbitration.

5/. Dorton in"ests personally o%ned e-uipment, %hich originally cost

+11, and has accumulated depreciation of +3, in the Dorton and

Eennett partnership. Foth partners agree that the fair mar'et "alue of the

e-uipment %as +6,. The entry made by the partnership to record

Dortons in"estment should be

a. ;-uipment ............................................................................

11, ccumulated epreciationG ;-uipment ...................... 3, Dorton,

apital.............................................................

/,

b. ;-uipment ............................................................................ /,

Dorton, apital.............................................................

/, c. ;-uipment ............................................................................

6,

(oss on $urchase of ;-uipment

..........................................

2, ccumulated epreciationG

;-uipment...............................

3,

Dorton, apital.............................................................

11, d. ;-uipment ............................................................................

6,

Dorton, apital.............................................................

6,

50. $artner F is in"esting in a partnership %ith $artner . F contributes as

part of his initial in"estment, ccounts ecei"able of +/,H an

llo%ance for oubtful ccounts of +12,H and +/, cash. The

entry that the partnership ma'es to record Fs initial contribution

includes a

a. credit to F, apital for +//,.

b. debit to ccounts

ecei"able for +6/,. c.

credit to F, apital for

+76,.



d. debit to llo%ance for oubtful ccounts for +12,.

6. =hich of the follo%ing %ould not be recorded in the entry for

the formation of a partnership>

a. ccumulated depreciation

b. llo%ance fordoubtful accounts c.

ccounts recei"able

d. ll of these %ould be recorded.

61. Fob is in"esting in a partnership %ith Ierry. Fob contributes e-uipment

that originally cost +63,, has a boo' "alue of +3,, and a fair

mar'et "alue of +30,. The entry that the partnership ma'es to record

Fobs initial contribution includes a

a. debit to

;-uipment for +33,. b. debit

to ;-uipment for

+63,. c. debit

to ;-uipment for

+30,.

d. credit to ccumulated epreciation for +33,.

62. partner contributes, as part of her initial in"estment, accounts

recei"able %ith an allo%ance for doubtful accounts. =hich of the

follo%ing reflects a proper treatment>

-2 ( -0 /est Bank =or Accountin) Princi#les> i)hth !ition

a. The balance of the accounts recei"able account should be recorded

on the boo's of the partnership at its net reali#able "alue.

b. The allo%ance account may be set up on the boo's of the

partnership because it relates to the existing accounts that are being

contributed.

c. The allo%ance account should not be carried onto the boo's of the partnership.

d. The accounts recei"able and allo%ance should not be recorded on

the boo's of the partnership because a partner must in"est cash inthe business.

63. =hich one of the follo%ing %ould not be considered an expense

of a partnership in determining income for the period>

a. ;xpired insurance

b. alary

allo%ance to

partners c.

upplies used

d. Areight9out

64. partner in"ests into a partnership a building %ith an original



cost of +0, and accumulated depreciation of +4,. This

building has a +7, fair mar'et "alue. s a result of the in"estment,

the partnerJs capital account %ill be credited for

a

.

+

7

,

.

b.

+

5

,

.

c

.

+

0

,

.

d

.

+

1

2

,



.

se the follo%ing information for -uestions 65K67.

Iames and (aura are forming a partnership. Iames %ill in"est a truc' %ith

a boo' "alue of +1, and a fair mar'et "alue of +14,. (aura %ill

in"est a building %ith a boo' "alue of +3, and a fair mar'et "alue of

+42, %ith a mortgage of +15,.

65. t %hat amount should the

building be recorded> a.

+3,

b

.

+

2

7

,

c

.

+

4

2

,

d.

+

4

5

,

66. =hat amount should be recorded in

(auraJs capital account> a. +3,



b

.

+

2

7,

c

.

+

42

,

d

.

+

1

4

,

67. =hat amount should be recorded in

IamesJ capital account> a. +3,

b

.

+

2

7

,

c.



+

4

2

,

d

.

+

1

4

,

6/. peir and $ablo decide to organi#e a partnership. peir in"ests

+15, cash, and $ablo contributes +12, cash and e-uipment ha"ing

a boo' "alue of +6,. hoose the entry to record $abloJs in"estment

in the partnership assuming the e-uipment has a fair mar'et "alue of

+0,.


-2 ( --

a.

ash..............................................................................

.......

12, ;-uipment

...........................................................................

6,$ablo, apital .............................................................

1/, b. ;-uipment ...........................................................................

6,

$ablo, apital .............................................................

6, c. ash .....................................................................................

12,

$ablo, apital .............................................................

12, d. ash.....................................................................................

12,



;-uipment ........................................................................... 0,

$ablo, apital .............................................................

21,


$artners bel and ain ha"e capital balances in a partnership of +4,

and +6,, respecti"ely. They agree to share profits and losses as follo%s*

belain

s salaries +1,

+12,

s interest on capital at the beginning of the year 1@

1@ emaining profits or losses

5@ 5@

60. &f income for the year %as +5,, %hat %ill be the distribution

of income to ain> a. +23,

b

.

+

2

7

,

c

.

+

2

,

d

.

+

1

,



7. &f income for the year %as +3,, %hat %ill be the distribution

of income to bel> a. +13, b

.

+

7

7

,

c

.

+

1

,

d

.

+

1

4

,

71. &f net loss for the year %as +2,, %hat %ill be the

distribution to ain> a. +12, income

b.

+

1,

in



c

o

m

e

c.

+1,

lo

ss

d. +2, loss

72. $artners Iim and Ioe ha"e agreed to share profits and losses in

an /*2 ratio respecti"ely, after Iim is allo%ed a salary allo%ance of +14, and Ioe is allo%ed a salary allo%ance of +7,. &f the

partnership had net income of +14, for 2/, IoeJs share of the

income %ould be

a

.

+

7

,

.

b

.

+

5

6,

.

c

.

+/



4

,

.

d

.

+

1

4

,

.


73. The most appropriate basis for di"iding partnership net income %hen

the partners do not plan to ta'e an acti"e role in daily operations is

a. on a fixed ratio.

b. interest on capital balances and

salaries to the partners. c. on a ratio

based a"erage capital balances.

d. salaries to the partners and the remainder on a fixed ratio.

74. The mith and Iones partnership agreement stipulates that profits

and losses %ill be shared e-ually after salary allo%ances of +16,

for mith and +/, for Iones. t the beginning of the year, miths

apital account had a balance of +32,, %hile Iones apital

account had a balance of +2/,. Det income for the year %as

+2,. The balance of Iones apital account at the end of the year

after closing is

a

.

+

3

/

,

.



b

.

+

/

,

.

c

.

+3

4

,

.

d

.

+

3

6

,

.

75. partners share of net income is recogni#ed in the

accounts through a. ad!usting entries.

b. closing entries.

c.

cor

rect

ing

entr

ies.d.



acc

rual

entr

ies.

76. The partnership of Dott and eese reports net income of +6,.The partners share e-ually in income and losses. The entry to record

the partners share of net income %ill include a

a. credit to &ncome

ummary for +6,. b.

credit to Dott, apital

for +3,.

c. debit to eese,

apital for +3,. d.

credit to eese,

ra%ing for +3,.

77. $artner recei"es +21, and $artner F recei"es +14, in a

split of +35, net income. =hich expression does not reflect the

income splitting arrangement>

a. 3*2

b

.

3

8

5

L

2

8

5

c

.

6

*

4

d. 2*1

7/. n income ratio based on capital balances might be

appropriate %hen a. ser"ice is a primary

consideration.

b. some, but not all, partners plan to %or' in the business.

c. funds in"ested in the partnership are considered

the critical factor. d. little net income is expected.



70. &f the partnership agreement specifies salaries to partners, interest on

partners capital, and the remainder on a fixed ratio, and partnership

net income is not sufficient to co"er both salaries and interest,

a. only salaries are

allocated to the partners. b.

only interest is allocated tothe partners.

c. the entire net income is shared on a fixed ratio.

d. both salaries and interest are allocated to the partners.ccounting for$artnerships

-2 ( -,

/. =hich of the follo%ing %ould not be considered an expense of

a partnership in determining income for the period>

a.

;xpire

d

insuran

ce b.

&ncome

tax

expens

e c.

ent

expense

d. tilities expense

se the follo%ing information for -uestions /1K/2.

The net income of the $ine and ?iles partnership is +1/,. The

partnership agreement specifies that $ine and ?iles ha"e a salary allo%ance of

+4/, and +72,, respecti"ely. The partnership agreement also specifies an

interest allo%ance of 1@ on capital balances at the beginning of the year.

;ach partner had a beginning capital balance of +12,. ny remaining net

income or net loss is shared e-ually.

/1. =hat is $ines share of the

+1/, net income> a.

+4/,

b

.

+

6

,



c

.

+

6

6

,

d.

+

7

/

,

/2. =hat is the balance of ?iles apital account at the end of the year

after net income has been distributed>

a

.

+

2

4

,

b

.

+

1

0

2,



c

.

+

2

2

2

,

d

.

+

2

1

,

/3. The net income of the Torrey and More partnership is +25,.

The partnership agreement specifies that profits and losses %ill be

shared e-ually after salary allo%ances of +2, Torrey and

+15, More ha"e been allocated. t the beginning of the year,

Torreys apital account had a balance of +5, and Mores apital

account had a balance of +65,. =hat is the balance of Mores

apital account at the end of the year after profits and losses ha"e been

distributed>

a.

+

6

5

,



capital

accounts. d.

partnersJ

dra%ing

accounts.


/6. The o%ners e-uity statement for a

partnership is called the a. partners

proportional statement.

b. partners capital statement.

c. statement of

shareholders

e-uity. d. capital

and dra%ing

statement.

/7. =hich of the follo%ing %ould not cause an increase in

partnership capital> a. ra%ings

b. Det income

c. dditional capital

in"estment by the partners d.

&nitial capital in"estment by

the partners

//. Iill Mriers capital statement re"eals that her dra%ings during the year

%ere +5,. he made an additional capital in"estment of +25,and her share of the net loss for the year %as +1,. )er ending

capital balance %as +2,. =hat %as Iill Mriers beginning

capital balance>

a

.

+

2

2

5,

b

.

+

1

/



5

,

c

.

+

2

3

5

,

d

.

+

2

6

,

/0. Fill =ren started the year %ith a capital balance of +1/,. uring

the year, his share of partnership net income %as +16, and he

%ithdre% +3, from the partnership for personal use. )e made an

additional capital contribution of +5, during the year. The amount

of Fill =rens capital balance that %ill be reported on the year9end

balance sheet %ill be

a.

+

1

6

,

.



b

.

+

30

,

.

c

.

+

3

,

.

d

.

+

3

6

,

.

0. The $artners apital tatement for the nited enter reported the

follo%ing information in total*

apital, Ianuary

1..................................................

+12, dditional

in"estment.............................................

4,



ra%ings.....................................................

...........

/, Det

income.........................................................

.... 1,

The partnership has three partners* ?oon, Marr, and ice %ith ending

capital balances in a ratio 4*2*4. =hat are the respecti"e ending

balances of the three partners>

a. ?oon, +/,H Marr,

+4,H ice, +/,. b.

?oon, +72,* Marr, +36,H

ice, +72,.

c. ?oon, +136,H Marr,

+6/,H ice, +136,. d.

?oon, +0,H Marr, +4/,Hice, +0,.


-2 ( -:

01. The total column of the $artners apital tatement for Dorth ompany is asfollo%s*

apital, Ianuary 1 ................................................. dditional

in"estment ............................................ ra%ings............................................................... Det

income ............................................................+15, 6, 0, 1/,

The partnership has three partners. The first t%o partners ha"e ending

capital balances that are e-ual. The ending balance of the third partner is

half of the ending balance of the first partner. =hat is the ending capital

balance of the third partner>

a

.

+

7

2

,

b

.

+



4

/

,

c

.

+

6

,

d

.

+

6

6

,

02. The partners dra%ing accounts are

a. reported on the

income statement. b.

reported on the

balance sheet.

c. closed to &ncome ummary.

d. closed to the partners capital accounts.

03. The niform $artnership ct pro"ides that

a. a purchaser of a partnership interest is not a partner until he or she is

accepted into the firm by the continuing partners.

b. a partner must obtain the appro"al of other partners before selling his or

her interest. c. the price paid in a purchase of partners interest must be

e-ual to the capital e-uity

ac-uired.

d. the price paid in a purchase of partners interest must be greater

than the capital e-uity ac-uired.

04. The balance sheet of a partnership %ill

a. report retained earnings belo% the partnership



capital accounts. b. sho% a separate capital account

for each partner.

c. sho% a separate dra%ing account for each partner.

d. sho% the amount of income that %as distributed to each partner.

05. The li-uidation of a partnership may result from each of thefollo%ing except the a. ban'ruptcy of the partnership.

b. death of a partner.

c. retirement of a partner.

d. sale of the business by the partners.

06. &n the li-uidation of a partnership, any gain or loss on the reali#ation of

noncash assets should be allocated

a. first to creditors and the remainder to partners.

b. to the partners on the basis of their capital balances.

c. to the partners on the basis of their

income9sharing ratio. d. only after all

creditors ha"e been paid.

07. &n the li-uidation of a partnership, any partner %ho has a

capital deficiency a. has a personal debt to the partnership

for the amount of the deficiency. b. is automatically

terminated as a partner.

c. %ill recei"e a cash distribution only on the basis of his or her

income9sharing ratio. d. is not obligated to ma'e up the capital

deficiency.


0/. $artners , F, and ha"e capital account balances of +12, each.

The income and loss ratio is 5*2*3, respecti"ely. &n the process of

li-uidating the partnership, noncash assets %ith a boo' "alue of

+1, are sold for +4,. The balance of $artner Fs apital

account after the sale is

a

.

+

0

,

.

b

.

+



1

2

,

.

c

.

+

1

/,

.

d

.

+

1

3

2

,

.


The partners income and loss sharing ratio is 2*3*5, respecti"ely.

, ;, D

A

$TD;

)&$

Falance

heet

ecember

31, 2/

ss e ts (ia b il ities a nd : % ne r s



; - ui t y

ash

Doncash assets

Total+ 0, 57,

+66 ,(iabilities , apital ;, apital A, apital

Total+3, 12, 1/,

6, +66 ,

00. &f the , ;, and A $artnership is li-uidated by selling the noncash

assets for +30, and creditors are paid in full, %hat is the amount of

cash that can be safely distributed to each partner>

a. , +72,H ;, +1/,H A, +.

b. , +/4,H ;,

+126,H A, +3,.

c. , +60,H ;,

+111,H A, +.

d. , +66,H ;, +114,H A, +.

1. &f the , ;, and A $artnership is li-uidated by selling the noncash

assets for +75,, and creditors are paid in full, %hat is the totalamount of cash that $artner %ill recei"e in the distribution of cash to

partners>

a

.

+

3

6

,

b

.

+

2

3

4

,



c

.

+

1

5

6

,

d.

+

1

5

,

11. &f the , ;, and A $artnership is li-uidated and the noncash assets

are %orthless, the creditors %ill loo' to %hat partners personal assets

for settlement of the creditors claims> a. The personal assets of $artner

;.

b. The personal assets of $artners and A.

c. The personal assets of $artners , ;, and A.

d. The personal assets of the partners are not a"ailable for partnership debts.ccounting for$artnerships

-2 ( -;

12. &f a partner has a capital deficiency and does not ha"e the personal

resources to eliminate it,

a. the creditors %ill ha"e to absorb the capital deficiency.

b. the other partners %ill absorb the capital deficiency on the basis of

their respecti"e capital balances.

c. the other partners %ill ha"e to absorb the capital deficiency on

the basis of their respecti"e income sharing ratios.

d. neither the creditors nor the other partners %ill ha"e to absorb the capitaldeficiency.



13. =hen a partnership terminates business, the sale of noncash

assets is called a. li-uidation.

b

.

r e

a

l

i

#

a

t

i

o

n.

c

.

r

e

c

o

g

n

i

t

i

o

n

.

d

.

d

i

s

p

o

s

i

t

i

on



.

14. The li-uidation of a partnership

a. cannot be a "oluntary

act of the partners. b.

terminates the business.c. eliminates those partners %ith a

capital deficiency. d. cannot occur

unless all partners appro"e.

15. The li-uidation of a partnership is a process containing the follo%ing steps*

1. $ay partnership liabilities in cash.

2. llocate the gain or loss on reali#ation to the partners on

their income ratios. 3. ell noncash assets for cash and

recogni#e a gain or loss on reali#ation.

4. istribute remaining cash to partners on the basis of their remainingcapital balances.

&dentify the proper se-uencing of the steps in the

li-uidation process. a. 3, 2, 4, 1.

b

.

3

,

2,

1

,

4

.

c

.

1

,

3

,

2

,

4



.

d

.

1,

4

,

3

,

2

.

16. &n the final step of the li-uidation process, remaining cash is

distributed to partners a. on an e-ual basis.

b. on the basis of the income ratios.

c. on the basis of the remaining

capital balances. d. regardless of

capital deficiencies.

17. &n the li-uidation process, if a capital account sho%s a deficiency

a. the partner %ith a deficiency has an obligation to the partnership for

the amount of the deficiency. b. it may be %ritten off to a <(oss< account.

c. it is disregarded until after the partnership

boo's are closed. d. it can be %ritten off to a

<Main< account.

1/. Fefore distributing any remaining cash to partners in a

partnership li-uidation, it is necessary to do each of the follo%ing

except

a. sell noncash assets for cash.

b. recogni#e a gain or loss on reali#ation.c. allocate the gain or loss to the partners based on their

capital balances. d. pay partnership liabilities in cash.

-2 ( -< /est Bank =or Accountin) Princi#les> i)hth !ition

10. Eate, ue, and Tina formed a partnership %ith income9sharing ratios

of 5@, 3@, and 2@, respecti"ely. ash of +1/, %as a"ailable

after the partnershipJs assets %ere li-uidated. $rior to the final

distribution of cash, EateJs capital balance %as +2,, ueJs

capital balance %as +15,, and Tina had a capital deficiency of

+5,. Fased upon a cash payments schedule, Eate should recei"e

a

.



+

1

7

5

,

.

b

.

+

16

/

,

7

5

.

c

.

+

1

3

1

,

2

5

.

d

.

+

2

,



.

11. , F and are partners, sharing income 2*1*2. fter selling all of

the assets for cash, di"iding gains and losses on reali#ation, and

paying liabilities, the balances in the capital accounts are as follo%s*

, +1, rH F, +1, rH and , +3, r. )o% much cashshould be distributed to >

a

.

+

6

,

b

.

+

2

,

c

.

+

1

,

d

.

+

1

6

,

66



7

111. &n li-uidation, balances prior to the distribution of cash to the partners

are* ash +3,H ?oorman, apital +14,H impson, apital

+13,, and Eelton, apital +3,. The income ratio is 6*2*2,

respecti"ely. )o% much cash should be distributed to ?oorman>a

.

+

1

2

5

,

b

.

+

1

3

6

,

2

5

c

.

+

1

4

,

d

.

+

15



,

112. ssume the same facts in -uestion 111 abo"e, except that there is only

+255, in cash and Eelton has a capital deficiency of +15,. )o%

much cash should be distributed to impson if Eelton does not pay his

deficiency>

a

.

+

1

22

,

5

b

.

+

1

2

6

,

2

5

c

.

+

1

1

/

,

7

5

d.



+

1

3

,

a113. . Mi"ens purchases a 25@ interest for +3, %hen the

uppan, $orter, Iames partnership has total capital of +27,. $rior

to the admission of Mi"ens, each partner has a capital balance of

+0,. ;ach partner relin-uishes an e-ual amount of his capital

balance to Mi"ens. The amount to be relin-uished by Iames is

a.

+

1

5

,

.

b

.

+

1

0

,

.

c

.

+

2

2

,

5



.

d

.

+

3

7

,

5

.

a114. Fryant is admitted to a partnership %ith a 25@ capital interest by acash in"estment of +0,. &f total capital of the partnership is

+30, before admitting Fryant, the bonus to Fryant is

a

.

+

3

,

.

b

.

+

1

5

,

.

c

.

+

45



,

.

d

.

+

6

,

.


-2 ( -?


arley and Eingman are partners %ho share income and losses in the ratio of

3*2, respecti"ely. :n ugust 31, their capital balances %ere* arley, +175,

and Eingman, +15,. :n that date, they agree to admit (erner as a partner %ith a one9third capital interest.

a115. &f (erner in"ests +125, in the partnership, %hat is arleys

capital balance after (erners admittance>

a

.

+

1

5

,

b

.

+1



5

/

,

3

3

3

c

.

+

1

6

,

d

.

+

1

7

5

,

a116. &f (erner in"ests +2, in the partnership, %hat is Eingmans

capital balance after (erners admittance>

a

.

+

1

7

5

,

b

.



+

1

6

,

c

.

+

1

5

7,

5

d

.

+

1

5

,

a117. Eing and Dott are partners %ho share profits and losses e-ually

and ha"e capital balances of +56, and +40,, respecti"ely.

tarr is admitted into the partnership by in"esting +40, for 3@

capital interest. The account balance of Dott, apital after the admission

of tarr %ould be

a

.

+

4

6

2

,



.

b

.

+

4

7

6

,

.

c

.

+

5

4

,

.

d

.

+

4

0

,

.

a11/. tine and =atson ha"e partnership capital balances of +32,

and +24,, respecti"ely. =atson negotiates to sell his partnership

interest to (eary for +2/,. tine agrees to accept (eary as a ne%

partner. The partnership entry to record this transaction is

a. ash..................................................................................... 2/,(eary, apital ..............................................................



2/, b. =atson, apital ....................................................................

2/,

(eary, apital ..............................................................

2/, c. ash .....................................................................................4,

=atson, apital.................................................................... 24,

(eary, apital ..............................................................

2/, d. =atson, apital ....................................................................

24,

(eary, apital ..............................................................

24,

a110. )ill and ;ddy share partnership profits and losses in the ratio of 6*4.

)ills apital account balance is +32, and ;ddyJs apital account

balance is +2,. $orter is admitted to the partnership by in"esting

+36, and is to recei"e a one9fourth o%nership interest. )ill, ;ddy and

$orters capital balances after $orters in"estment %ill be

)ill ; ddy $orter

a. +32,

+2,

+36, b. +44,

+256,

+22, c. +306,

+264,

+22, d. +30,

+27,

+22,

-2 ( 20 /est Bank =or Accountin) Princi#les> i)hth !ition

a12. Iudy and eb ha"e partnership capital account balances of

+6, and +45,, respecti"ely and share profits and losses

e-ually. nne is admitted to the partnership by in"esting +25, for

a one9fourth o%nership interest. The balance of ebs apital

account after nne is admitted is

a.



+

4

1

2

,5

.

b

.

+

45

,

.

c

.

+

4

/

7

,

5

.

d

.

+

3

2

5

,



.

a121. The admission of a ne% partner to an existing partnership

a. may be accomplished only by in"esting assets

in the partnership. b. re-uires purchasing the

interest of one or more existing partners. c.

causes a legal dissolution of the existing

partnership.

d. is almost al%ays accompanied by the li-uidation of the business.

a122. =hen a partnership interest is purchased

a. e"ery partnerJs capital account is affected.

b. the transaction is a personal transaction bet%een the purchaser

and the selling partners.

c. the buyer recei"es e-uity e-ual to the

amount of cash paid. d. all partners %illrecei"e some part of the purchase price.

a123. dler and (ynn each sell 183 of their partnership interest to ele,

recei"ing +14, each. t the time of the admission, each partner

has a +42, capital balance. The entry to record the admission of

ele %ill sho% a

a. debit to ash for +2/,.

b. credit to ele,

apital for +42,.

c. debit to (ynn,apital for +42,.

d. debit to dler,

apital for +14,.

a124. Fall and Mant sell 184 of their partnership interest to &"es recei"ing

+2, each. t the time of admission, Fall and Mant each had a

+35, capital balance. The admission of &"es %ill cause the net

partnership assets to

a.

increase by

+4,

. b.

remain

at

+7,

.

c.

decrease

by

+4,

. d.



remain

at

+1,1,

.

a125. ole and Mlenn sell to Dabb a 183 interest in the ole9Mlenn

partnership. Dabb %ill pay ole and Mlenn each +7, for admission

into the organi#ation. Fefore this transaction, ole and Mlenn sho%

capital balances of +15, each. The !ournal entry to record the

admission of Dabb %ill

a. sho% a debit to

ash for +14,.

b. not sho% a debit

to ash.

c. sho% a debit to Mlenn,

apital for +7,. d. sho%a credit to Dabb, apital for

+14,.


-2 ( 2-

a126. Aoxx in"ests +2, in cash admission by in"estment in the ?assey9

ix partnership to ac-uire a 184 interest. &n this case

a. the accounting %ill be the same as a purchase of an interest. b. the total net assets of the ne% partnership are unchanged from the

pre"ious partnership. c. the total capital of the ne% partnership is

greater than the total capital of the old

partnership.

d. Aoxxs income ratio %ill automatically be 184.

a127. =hich of the follo%ing is correct %hen admitting a ne% partner

into an existing partnership>

$ur c hase o f an & n ter e st

dmiss i on by &n" e stme n t a. Total

net assets unchanged

unchanged

b. Total capital increased

unchanged c. Total net

assets unchanged

increased d. Total capital

unchanged

unchanged

a12/. =hen admitting a ne% partner by in"estment, a bonus to old partners

a. is usually un!ustified because boo' "alues clearly reflect partnership net%orth.



b. is sometimes !ustified because good%ill may exist and it is not

reflected in the accounts. c. results if the debit to cash is less than the

ne% partners capital credit.

d. results if the debit to cash is e-ual to the ne% partners capital credit.

a120. =hen admitting a ne% partner by in"estment, a bonus to old

partners is allocated on a. the basis of capital balances.

b. the basis of the original in"estment of the old partners.

c. the basis of income ratios before the admission of

the ne% partner. d. a seniority basis.

a13. bonus

to a ne%

partner a.

is

prohibited by

M$.

b. results %hen the ne% partners capital credit is less than his or

her in"estment of assets in the firm.

c. may occur %hen recorded boo' "alues are lo%er than mar'et "alues.

d. results %hen the ne% partners capital credit is greater than his or

her in"estment of assets in the firm.

a131. bonus to a ne% partner %ill

a. increase the capital balances of existing partners based on theirincome ratios before the admission of the ne% partner.

b. increase the capital balances of existing partners based on their

income ratios after the admission of the ne% partner.

c. decrease the capital balances of existing partners based on their

income ratios before the admission of the ne% partner.

d. decrease the capital balances of existing partners based on their

capital balances before the admission of the ne% partner.

a132. Iane, Een, and ?ar' ha"e partnership capital account balances of

+225,, +45, and +15,, respecti"ely. The income sharing ratiois Iane, 5@H Een, 4@H and ?ar', 1@. Iane desires to %ithdra%

from the partnership and it is agreed that partnership assets of

+105, %ill be used to pay Iane for her partnership interest. The

balances of Eens and ?ar's apital accounts after Ianes %ithdra%al

%ould be


a. Een,

+45,H ?ar',

+15,. b.

Een, +474,H?ar', +111,.



c. Een,

+426,H ?ar',

+00,. d. Een,

+435,H ?ar',

+0,.

a133. ce, Fell, and ole ha"e partnership capital account balances of

+4, each. &ncome and losses are shared e-ually. ole agrees to

sell three9fourths of his o%nership interest to ce for +35, and

one9fourth to Fell for +125,. ce and Fell %ill use personal assets

to purchase oles interest. The partnerships entry to record oles

%ithdra%al from the partnership %ould be

a. ole, apital ....................................................................... 475,

ash ..........................................................................

475, b. ole, apital....................................................................... 475,

ce, apital ...............................................................

35, Fell, apital

................................................................

125,

c. ole, apital ....................................................................... 4,

ce, apital ...............................................................

3, Fell, apital

................................................................

1,

d. ce, apital

........................................................................

356,25 Fell, apital

.........................................................................

11/,75ole, apital .............................................................

475,

a134. =hen a partner %ithdra%s from the firm, %hich of the follo%ing

reflects the correct partnership effects>

$ayment from

$ayment from $art n ers $er s onal

ssets $artne r sh i p ss e tsa. Total net assets decreased



decreased b. Total

capital decreased

decreased c. Total

net assets unchanged

decreased d. Total

capital unchangedunchanged

a135. =hich of the follo%ing is not a necessary action that the partnership

must ta'e upon the death of a partner>

a. etermine the net income or net loss

for the year to date. b. iscontinue

business operations.

c. lose the boo's.

d. $repare financial statements.

se the follo%ing information for -uestions 136K13/.

:n Do"ember 3, capital balances are Mray +0,, arr +75, and

?elton +75,. The income ratios are 2@, 2@ and 6@, respecti"ely. Mray

decides to retire from the partnership.

a136. The partnership pays Mray +15, cash for her partnership

interest. fter Mrays retirement, %hat is the balance of arrs capital

account>

a

.

+

7

1

,

2

5

b.

+

7

2

,

c



.

+

7

5

,

d

.

+

0

7,

5


-2 ( 2,

a

137. The partnership pays Mray +75, cash for her partnershipinterest. fter Mrays retirement, %hat is the balance of ?eltons capital

account>

a

.

+

6

6

,

b

.

+

7

5

,



c

.

+/

4

,

d

.

+

/

6

,

2

5

a13/. &n order for arr and ?elton to ha"e e-ual capital interests after the

retirement of Mray, ho% much partnership cash %ould ha"e to be paid toMray for her partnership interest>

a. +

b

.

+

/

,

c

.

+

0

,



d. ny amount paid to Mray %ill cause arr and ?elton to still

ha"e e-ual capital balances.

ddi t ional ?ult i ple h oice N ues t ions

130. ll of the follo%ing are characteristics of

partnerships except a. co9o%nership of

property.

b.

m

ut

ua

l

ag

ency

.

c.

un

li

mi

te

d

lif

e.

d. association of indi"iduals.

14. The Fut'us, ayers, and )alas partnership is terminated %hen the

claims of company creditors exceed partnership assets by +5,. The

capital balances for Fut'us, ayers, and )alas are +35,, +5,, and

+, respecti"ely. The original claims of the creditors %ere negotiated by

ayers and )alas. =hich partners isare personally and indi"idually

liable for all partnership liabilities>

a

.

F

u

t

'

u

s

b

.



a

y

e

r

s

c. ayers and )alasd. Fut'us, ayers, and )alas

141. =hen a partner in"ests noncash assets in a partnership, the assets should

be recorded at their

a. boo' "alue.

b. carrying "alue.

c.

fair

mar

'et"alu

e. d.

origi

nal

cost.

142. The partnership agreement of ossi and $etry pro"ides for salary

allo%ances of +45, to ossi and +35, to $etry, %ith the

remaining income or loss to be di"ided e-ually. uring the year, ossi

and $etry each %ithdra% cash e-ual to /@ of their salary

allo%ances. &f partnership net income is +1,, ossis e-uity in the partnership %ould a. increase more than $etryJs.

b. decrease

more than

$etrys. c.

increase the same

as $etrys. d.

decrease the

same as $etrys.


143. =hich of the follo%ing statements is correct>

a. alaries to partners and interest on partners capital are expenses of

the partnership. b. alaries to partners are expenses of the

partnership but not interest on partners

capital.

c. &nterest on partners capital is an expense of the partnership

but not salaries to partners.

d. Deither salaries to partners nor interest on partners capital are

expenses of the partnership.

144. &n the li-uidation of a partnership, the gains and lossesfrom assets sold are a. di"ided e-ually among the



partners.

b. di"ided among the partners in the stated income ratio.

c. di"ided among the partners in proportion to their

capital e-uity interests. d. ignored.

145. &f a partner %ith a capital deficiency is unable to pay the amount o%edto the partnership, the deficiency is allocated to the partners %ith credit

balances

a. e-ually.

b. on the basis of their income ratios.

c. on the basis of their capital balances.

d. on the basis of their original in"estments.

146. n entry is not re-uired in the li-uidation of a

partnership to record the a. payment of cash to

creditors. b. distribution of

cash to the partners.

c. sale of noncash

assets.

d. allocation of a capital deficiency to partners %ith credit balances

%hen the deficient partner is expected to pay the deficiency.

147. The first step in the li-uidation of a partnership is to

a. allocate a gain or loss on

reali#ation to the partners. b.

distribute remaining cash to the partners.

c. pay partnership liabilities.

d. sell noncash assets and recogni#e a gain or loss on reali#ation.

14/. Fa'er !oins the partnership of Eube' and ?usial by paying +3,

in cash. &f the net assets of the partnership are still the same amount

after Fa'er has been admitted as a partner, then Fa'er

a. must ha"e been admitted by in"estment of assets.

b. must ha"e been admitted by purchase of a

partners interest. c. must ha"e recei"ed a bonus upon being admitted.

d. could ha"e been admitted by an in"estment of assets or by a

purchase of a partners interest.

140. (o%e is admitted to a partnership %ith a 25@ capital interest by a

cash in"estment of +12,. &f total capital of the partnership is

+52, before admitting (o%e, the bonus to (o%e is

a

.

+

4



,

.

b

.

+

2

,

.

c

.

+

6

,

.

d

.

+

/

,

.

B1*5 @1C*SS



B -:0

Frandy and Iohnson decide to organi#e a partnership. Frandy in"ests

+25, cash, and Iohnson contributes +5, and e-uipment ha"ing a boo'

"alue of +3,5 and a fair mar'et "alue of +1,.

*nstructions

$repare the entry to record each partnerJs in"estment.

B -:-

Tonto ompany and anger ompany decide to merge their proprietorships

into a partnership called =est%ard )o ompany. The balance sheet of anger

ompany sho%s*

ccounts ecei"able

(ess* llo%ance for doubtful accounts

;-uipment

(ess* ccumulated depreciation+15,

1,5

+2,

1 ,

+13,5

+1,

The partners agree that the net reali#able "alue of the recei"ables is +12,5

and that the fair mar'et "alue of the e-uipment is +15,.

*nstructions

&ndicate ho% the four accounts should appear in the opening balance sheet of the partnership.

B -:2

The Iill L Arill o. reports net income of +2/,. &nterest allo%ances are

Iill +3, and Arill +5,H partner salary allo%ances are Iill +1/, and

Arill +1, and the remainder is shared e-ually.

*nstructions

&ndicate the di"ision of net income to each partner, and prepare the entry to

distribute the net income.



B -:,

ebauge o. had beginning capital balances on Ianuary 1, 2/, as follo%s*

Dic' Aoley +3, and Tom =enger +25,. uring the year, dra%ings

%ere Aoley +15, and =enger +/,. Det income %as +5,, and the

partners share income e-ually.

*nstructions

$repare the partnersJ capital statement for the year.

B -:4

fter li-uidating noncash assets and paying creditors, account balances in the

?ain o. are ash +20,, apital r. +11,, F apital r, +/,

and apital r. +1,. The partners share income e-ually.

*nstructions

Iournali#e the final distribution of cash to the partners.

B -::

Farnes ompany at ecember 31 has cash +4,, noncash assets

+2,, liabilities +11,, and the follo%ing capital balances* arpenter

+0, and $endleton +4,. The firm is li-uidated, and +24, in

cash is recei"ed for the noncash assets. arpenter and $endleton income

ratios are 6@ and 4@, respecti"ely.

*nstructions

$repare a cash distribution schedule.

B -:6

&n Delson o., capital balances are :##ie +6, and )arriet +75,.

The partners share income e-ually. enny is admitted to the firm %ith a

4@ interest by an in"estment of cash of +65,. Iournali#e the admission

of enny.

B -:;

Fob and Eathy are partners %ho share profits 6@ and 4@. Their capital

balances %ere both +0, before Fetty %as admitted to the partnership.

Fetty contributed +12, in cash to the partnership for a 3@ interest.

*nstructions

ompute the capital balances of Fob and Eathy after Fetty is admitted to the partnership.




-2 ( 2?

B -:<

apital balances in Ietson o. are Meorge +5,, Iane +3/,, and Aran'

+25,. The partners share income e-ually. Aran' recei"es +35, from

partnership assets in %ithdra%ing from the firm.

*nstructions

Iournali#e the %ithdra%al of Aran'.

B -:?

?i'e, ndy, and Ioe are partners %ho share profits 4@, 2@, and 4@. Their

capital balances %ere +63,, +42,, and +21,, respecti"ely, beforeIoeJs retirement. Ioe %as paid +27, from partnership assets to buy his

interest.

*nstructions

ompute the capital balances of ?i'e and ndy after Ioe has %ithdra%n.

@1C*SS

' -60

ic' cer and Meorge ooley decide to form a partnership. cer in"ests+25, cash and accounts recei"able of +3, less allo%ance for

doubtful accounts of +2,. ooley contributes +2, cash and

e-uipment ha"ing a +6, boo' "alue. &t is agreed that the allo%ance

account should be +3, and the fair mar'et "alue of the e-uipment is

+1,.

*nstructions

$repare the necessary !ournal entry to record the formation of the partnership.

' -6-Een (ott and Iim tine operate separate auto repair shops. :n Ianuary 1,

2/, they decide to combine their separate businesses %hich %ere operated

as proprietorships to form ( L uto epair, a partnership. &nformation

from their separate balance sheets is presented belo%*

ash

ccounts recei"able

llo%ance for doubtful accounts ccounts payable

Dotes payable alaries payable ;-uipment

ccumulated amorti#ationG;-uipment(ott u to ep a ir +1,



0, 1, 5,

G 1,

12, 2,tine uto e p air +12,

1, 5 6, 3, 1,5 24, 4,

&t is agreed that the expected reali#able "alue of (otts accounts recei"able is

+/, and tines recei"ables is +7,. The fair mar'et "alue of (otts

e-uipment is +13, and the "alue of tines e-uipment is +2,. &t is

further agreed that the ne% partnership %ill assume all liabilities of the

proprietorships %ith the exception of the notes payable on tines balance

sheet %hich he %ill pay himself.

*nstructions

$repare the !ournal entries necessary to record the formation of the partnership.ccounting for

$artnerships

-2 ( ,-

' -62

The mith and =ilson partnership reports net income of +45,. $artner salary

allo%ances are mith +1/, and =ilson +12,. ny remaining income is

shared 6*4.

*nstructions

etermine the amount of net income allocated to each partner.

' -6,

Fass, ;llis, and Moren formed a partnership on Ianuary 1, 2/. Fass

in"ested +6,, ;llis +6, and Moren +14,. Fass %ill manage the

store and %or' 4 hours per %ee' in the store. ;llis %ill %or' 2 hours per

%ee' in the store, and Moren %ill not %or'. ;ach partner %ithdre% 3

percent of his income distribution during 2/. &f there %as no income

distribution to a partner, there %ere no %ithdra%als of cash.

*nstructions

ompute the partners capital balances at the end of 2/ under the

follo%ing independent conditions* )int* use T accounts to determine each

partners capital balances.

' -6, cont.

1 Det income is +12, and the income ratio is Fass 4@, ;llis 35@, and Moren25@.

2 Det income is +14, and the partnership agreement only specifies a

salary of +5, to Fass and +3, to ;llis.

3 Det income is +/6, and the partnership agreement pro"ides for a a

salary of +4, to Fass and +4, to ;llis, b interest on beginning



capital balances at the rate of 1@, and c any remaining income or loss

is to be shared by Fass 4@, ;llis 35@, and Moren 25@.

' -64

arlin and (ar"e ha"e a partnership agreement %hich includes the follo%ing

pro"isions regarding sharing net income or net loss*

1. salary allo%ance of +54, to arlin and +36, to (ar"e.

2. n interest allo%ance of 1@ on capital balances at the

beginning of the year. 3. The remainder to be di"ided 6@ to

arlin and 4@ to (ar"e.

The capital balance on Ianuary 1, 2/, for arlin and (ar"e %as +0,

and +12,, respecti"ely. uring 2/, the arlin and (ar"e $artnership had

sales of +405,, cost of goods sold of +20,, and operating expenses of

+75,.*nstructions

$repare an income statement for the arlin and (ar"e $artnership for the year

ended ecember 31, 2/. s a part of the income statement, include a

i"ision of Det &ncome to each of the partners.

' -6:

)ope L rosby o. reports net income of +34,. The partnership

agreement pro"ides for annual salaries of +24, for )ope and +15, for

rosby and interest allo%ances of +4, to )ope and +6, to rosby. nyremaining income or loss is to be shared 7@ by )ope and 3@ by rosby.

*nstructions

ompute the amount of net income distributed to each partner.

' -66

The ad!usted trial balance of the Earris and =atts $artnership for the year

ended ecember 31, 2/, appears belo%*

E& D

=TT$TD;)&$

d!usted Trial

Falance

Aor the Oear ;nded ecember 31, 2/

urrent ssets....................................................................................... $lant ssets

.......................................................................................... urrent

(iabilities................................................................................... (ong9term ebt

..................................................................................... Earris,

apital........................................................................................ Earris,ra%ing...................................................................................... =atts,



apital ........................................................................................ =atts,

ra%ing ...................................................................................... ales

..................................................................................................... ost of Moods

old ............................................................................... :perating

;xpenses..............................................................................

eb i t10, /,

4,

7,

62,

23, 105 ,

redit

7, 5, 2,

1/,

1,

105 ,

The partnership agreement stipulates that a di"ision of partnership net income

or net loss is to be made as follo%s*

1. salary allo%ance of +12, to Earris and

+23, to =atts. 2. The remainder is to be

di"ided e-ually.

*nstructions

a $repare a schedule %hich sho%s the di"ision of net income to each partner.

b $repare the closing entries for the di"ision of net income and for the

dra%ing accounts at ecember 31, 2/.

' -6;

Eim arey and ?ary )all ha"e formed the ) $artnership, and ha"e

capital balances of +13, and +1,, respecti"ely, on Ianuary 1, 2/.

:n Iune 1, 2/, )all in"ested an additional +3,. lso during the year,

arey %ithdre% +6, and )all %ithdre% +4/,. ales for the year

amounted to +36, and expenses %ere +26,. arey and )all share

income and losses on a 3*1 basis.

*nstructionsa $repare the closing entries at ecember 31, 2/, for the



) $artnership. b $repare a partners capital statement for

2/.

' -6<

$repare a partners capital statement for rest%ood ompany based on the follo%inginformation.

rest = ood

Feginning capital

+3,

+27, ra%ings during year

15, /,

Det income %as +35,, and the partners share income 6@ to rest and 4@ to=ood.

' -6?

:n ecember 31, Thompson ompany has cash +3,, noncash assets

+15,, and liabilities +/,. apital balances %ere Terry +55, and

Dott +45,. The firm is li-uidated, and the noncash assets are sold for

+125,. Terry and Dott share income in a 6*4 ratio.

*nstructions

$repare entries to record a the sale of noncash assets and b the allocation

of the gain loss on li-uidation to the partners.


-2 ( ,;

' -;0

The F $artnership is to be li-uidated and you ha"e been hired to prepare a

chedule of ash $ayments for the partnership. $artners , F, and share

income and losses in the ratio of 4*3*3, respecti"ely. ssume the follo%ing*

1. The noncash assets %ere

sold for +75,. 2.

(iabilities %ere paid in full.

3. The remaining cash %as distributed to the partners. &f any

partner has a capital deficiency, assume that the partner is unable to

ma'e up the capital deficiency.

*nstructions

sing the abo"e information, complete the chedule of ash $ayments belo%*



F

$TD;

)&$

chedule of

ash$ayments

&tem ash P Falances before

li-uidation 25, P Doncash

sse t s Q

15, Q

(ia b il i ties P

5, P apit a l P

25, PF apit a l P

35, P apit a l

65,

' -;-

The : $artnership is to be li-uidated %hen the ledger sho%s the follo%ing*

ash

Doncash ssets (iabilities

:slo, apital ec'er, apital ilas, apital+ 5, 2, 5, 75,

1, 25,

:slo, ec'er, and ilas income ratios are 6*3*1, respecti"ely.

*nstructions

$repare separate entries to record the li-uidation of the partnership assuming

that the noncash assets are sold for +15, in cash.

' -;2

$rior to the distribution of cash to the partners, the accounts of F

ompany are* ash +3,, lt apital r. +1,, Fell apital r.+25,, and ole apital r. +15,. They share income on a 5*3*2 basis.



*nstructions

$repare entries to record a the absorption of lts capital deficiency by the

other partners and b the distribution of cash to the partners %ith credit

balances.


-2 ( ,?

' -;,

The MA $artnership is li-uidated %hen the ledger sho%s*

ash

Doncash ssets (iabilities

Mrant, apital Aleming, apital+6, 0, 44, 1, 6,

Mrant and Alemings income ratios are 3*2, respecti"ely.

*nstructions

$repare a schedule of cash payments, assuming that the noncash assets %ere

sold for +7,. ssume that any partnerJs capital deficiencies cannot be paid to

the partnership.

' -;4

The )o%ell and $ar's $artnership has partner capital account balances as follo%s*

)o%ell, apital $ar's, apital+55, 25,

The partners share income and losses in the ratio of 6@ to )o%ell and 4@ to $ar's.

*nstructions

$repare the !ournal entry on the boo's of the partnership to record the

admission of Tyler as a ne% partner under the follo%ing three independentcircumstances.

1. Tyler pays +35, to )o%ell and +15, to $ar's for one9half of each

of their o%nership interest in a personal transaction.

2. Tyler in"ests +/5, in the partnership for a one9third interest in

partnership capital. 3. Tyler in"ests +175, in the partnership for a

one9third interest in partnership capital.

' -;:



Eey, iser, and tone share income on a 6*3*1 basis. They ha"e capital

balances of +/,, +6,, and +45,, respecti"ely, %hen )orton is


*nstructions

$repare the !ournal entry to record the admission of )orton into the partnership if )orton purchases one9half of Eeys e-uity for +45,H one9half

of isers e-uity for +22,H and one9third of tones e-uity for +1/,.

' -;6

Tom osen and Ioe Ainney share partnership income on a 3*2 basis. They ha"e

capital balances of +56, and +2/,, respecti"ely, %hen ;d Rann is


*nstructions$repare the !ournal entry to record the admission of Rann under each

of the follo%ing assumptions*

a Rann in"ests +34, for a 25@

o%nership interest. b Rann in"ests

+2, for a 25@ o%nership interest.

c Rann in"ests an amount that gi"es him a 25@ o%nership interest.

' -;;

indy ?ills and my $eters ha"e capital accounts of +4/, and

+42,, respecti"ely. Fill enny and ?ar' ?organ are to !oin the

partnership. enny in"ests +45, in the partnership for %hich he recei"es

a capital credit of +45,. ?organ purchases a one9half interest from

?ills for +3, and a one9fourth interest from $eters for +0,.

*nstructions

a $repare the !ournal entries to record the admission of enny and ?organ to the partnership.

b etermine the capital balances of the partners after the admission of enny and?organ.


-2 ( 4,

' -;<

del, Maines, and Ooc'ey share income and losses in a ratio of 3*2*5,

respecti"ely. The capital account balances of the partners are as follo%s*

del, apital Maines, apital Ooc'ey, apital+6, 36, 24,

*nstructions



$repare the !ournal entry on the boo's of the partnership to record the

%ithdra%al of Ooc'ey under the follo%ing independent circumstances*

1. The partners agree that Ooc'ey should be paid +2/, by the partnership

for his interest. 2. The partners agree that Ooc'ey should be paid +1/,

by the partnership for his interest.

3. del agrees to pay Ooc'ey +1/, for one9half of his capital interest and

Maines agrees to pay Ooc'ey +1/, for one9half of his capital interest in

a personal transaction among the partners.

' -;?

ixon, (arsen, and $olley ha"e capital balances of +15,,

+1,, and +75,, respecti"ely, and their income ratios are 4*2*4.

*nstructions

ecord the %ithdra%al of $olley from the partnership under each of the

follo%ing assumptions* 1. $olley is paid +75, from partnership assets.

2. $olley is paid +0, from

partnership assets. 3. $olley is

paid +55, from partnership

assets.

C"PL/* S/A/"/S

1/. The SSSSSSSSSSSSSS ct pro"ides the basic rules for the formation

and operation of partnerships in more than 0@ of the states.

1/1. partnership characteristic %hich enables each partner to act on behalf of

the partnership %hen engaging in partnership business is called

SSSSSSSSSSSSSS.

1/2. ma!or disad"antage of the partnership form of organi#ation is SSSSSSSSSSSSSS, %hich ma'es each partner personally and indi"idually

liable for all partnership liabilities.

1/3. The capital accounts indicate each partners SSSSSSSSSSSSSS

in"estment, %hile the partners dra%ing accounts are SSSSSSSSSSSSSS

o%ners e-uity accounts.

1/4. The SSSSSSSSSSSSSS ratio specifies the basis for sharing income and losses.

1/5. n income ratio based on SSSSSSSSSSSSSS balances may be



appropriate %hen the amount of funds in"ested in the partnership is

critical to the partnership.

1/6. SSSSSSSSSSSSSS allo%ance or SSSSSSSSSSSSSS on partners capital

accounts are not expenses of the partnership %hen they are specified asthe basis for sharing income and losses.

1/7. &n li-uidating a partnership, it is necessary to con"ert SSSSSSSSSSSSSS

into cash and to allocate any SSSSSSSSSSSSSS or SSSSSSSSSSSSSS to

the partners based on their income ratios.

1//. debit balance in a partners capital account is called a SSSSSSSSSSSSS.

a1/0. ne% partner may be admitted to the partnership by SSSSSSSSSSSSSS

the interest of an existing partner, or by SSSSSSSSSSSSSS assets in the

partnership.

a10. =hen a ne% partners capital interest on the date of admittance is less

than his or her in"estment in the firm, a SSSSSSSSSSSSSS results for the

SSSSSSSSSSSSSS partners.

a101. &f a bonus is gi"en to a ne% partner, the old partners capital accounts

are decreased based on their SSSSSSSSSSSSSS ratio prior to the admissionof the ne% partner.

"A/C.*

102. ?atch the items belo% by entering the appropriate code letter in the space pro"ided.

. ?utual agency F. nlimited liability

. $artnership agreement . &ncome ratio

;. $artners capital statement A. dmission by in"estmentM. $urchase of an interest ). $artnership

li-uidation

&. apital deficiency

I. istribution of cash to partners in li-uidation of a partnership.

SSSS 1. ;ach partner is personally and indi"idually liable for partnership debts.

SSSS 2. ?ade on basis of partners capital balances.



SSSS 3. ;xplains changes in indi"idual partners capital accounts during a period.

SSSS 4. ;ach partner can bind the partnership so long as the action appears

to be appropriate for the partnership.

SSSS 5. Fusiness terminates.

SSSSa6. esults in an increase in total net assets and total capital of the

partnership.

SSSS 7. apital account %ith a debit balance.

SSSS /. The basis for sharing income and losses.

SSSSa0. Total net assets and total capital of the partnership do not change.

SSSS 1. =ritten or "erbal contract establishing duties and responsibilities of

partners.

S.1/(ASW1 SSA7 Q3S/*S

S(A -?,

&dentify and explain the principal characteristics of the partnership form of businessorgani#ation.

S(A -?4

partnership is li-uidated by selling the non9cash assets, paying the

creditors in full, and distributing the remaining assets to the partners. ;xplain

%hy gains and losses on the reali#ation of non9cash assets are distributed to the

partners based on their income ratios, %hereas cash is distributed to the partners

based on their e-uity as sho%n in their capital accounts. =hat effects does the

payment or nonpayment of a capital deficiency ha"e on the distribution of

cash to the partners>

S(A -?: ;thics

Three doctors, Aran' =hite, ?ar' osen, and te"e Ienner, opened a family

medicine clinic. ll three doctors had been lifelong friends. ll belonged to

the same religious faith. ll %ere "ery acti"e in church affairs, and tried to

mold their professional beha"ior to their religious beliefs.

bout a year ago, r. =hite announced that he %as lea"ing the church. The

others noticed that his personality also began to change. )e began to dress

in flamboyant styles, and he started %earing expensi"e9loo'ing !e%elry. )is

temper became unstableGone minute he %as calm, and the next, he might bethro%ing charts do%n the hall and screaming. )e started coming to the



office late, and forgetting to see some of his patients before he left again.

The other t%o at first %ere stunned at the changes. )is %ife as'ed them

%hether they thought he might ha"e a drin'ing problem. fter finally deciding

to in"estigate, they found %hat loo'ed to them li'e a large amount of cocaine,

hundreds of plastic sac's of %hite po%der tuc'ed a%ay in boxes of old

medical e-uipment.

Arightened, rs. osen and Ienner decided to act -uic'ly. Their

partnership agreement said nothing about dissol"ing the partnershipGonly

about %hat to do if one of them died. They therefore secretly rented

office space across to%n and began to mo"e the most necessary

e-uipment and supplies to the ne% office. month later, they changed the

loc's on the old office and began seeing patients in the ne% office %ithout

any notice to r. =hite at all. r. =hite simply came in at around ten

ocloc' as usual, and found himself loc'ed out of an empty office.

1euire!$

id rs. osen and Ienner act ethically in their ending of the partnership> ;xplain.

S(A -?6 ommunication

?att Iones and Ierry =atson began detail %or' on automobiles as a hobby.

Airst, they used a mail9order 'it to add <pinstriping< to their o%n cars, a

106/ ?ustang and a 107 MT: Iudge, respecti"ely. Then ?att added more

flourishes, including his name. Ierry practiced painting flames on his Iudge.

Mradually, their cars became recogni#ed around to%n and others began to as' them to add a flourish here or there to their cars. They %ere tal'ed into

attending a <muscle car< sho% in a nearby large city to sho% off their cars.

They had more re-uests for %or' than they could handle. Do%, they are

considering -uitting their other !obs and ma'ing this a permanent business.

Ierry, for example, turns do%n more !obs than he accepts and still gets more

re-uests e"ery %ee'.

S(A -?6 cont.

?att and Ierry are unsure ho% to proceed. They li'e the idea of a partnership,

but they only 'no% they %or' %ell togetherGthings li'e ho% to split payment

ha"e !ust been settled indi"idually for each !ob, depending on %hich one did

more %or'. ?atts father suggests a %ritten partnership agreement. ?att

disagrees. )e belie"es that it %ill spoil the %hole arrangement by reducing it to

%ords.

ACC 206 Accounting Principles II Week 4 Quiz

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Transcript of ACC 206 Accounting Principles II Week 4 Quiz