1

Asaweqwe xcvc zbvxcvbxcvb of Quincy to the partnership?
A. The bonus method.

B. The equity method.
C. The goodwill method.
D. The proportionate method.
E. The cost method.
2. When the hybrid method is used to record the withdrawal of a partner, the partnership
A. revalues assets and liabilities and records goodwill to the continuing partner but not to the withdrawing partner.
B. revalues liabilities but not assets, and no goodwill is recorded.
C. can recognize goodwill but does not revalue assets and liabilities.
D. revalues assets but not liabilities, and records goodwill to the continuing partner but not to the withdrawing partner.
E. revalues assets and liabilities but does not record goodwill.
3. The disadvantages of the partnership form of business organization, compared to corporations, include
A. the legal requirements for formation.
B. unlimited liability for the partners.
C. the requirement for the partnership to pay income taxes.
D. the extent of governmental regulation.
E. the complexity of operations.
4. The advantages of the partnership form of business organization, compared to corporations, include
A. single taxation.
B. ease of raising capital.
C. mutual agency.
D. limited liability.
E. difficulty of formation.
5. The dissolution of a partnership occurs
A. only when the partnership sells its assets and permanently closes its books.
B. only when a partner leaves the partnership.
C. at the end of each year, when income is allocated to the partners.
D. only when a new partner is admitted to the partnership.
E. when there is any change in the individuals who make up the partnership.
6. The partnership of Clapton, Seidel, and Thomas was insolvent and will be unable to pay $30,000 in liabilities currently due. What recourse was
available to the partnership's creditors?
A. They must present equal claims to the three partners as individuals.
B. They must try obtain a payment from the partner with the largest capital account balance.
C. They cannot seek remuneration from the partners as individuals.
D. They may seek remuneration from any partner they choose.
E. They must present their claims to the three partners in the order of the partners' capital account balances.
Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with investments of $100,000, $150,000, and $200,000, respectively. For
division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser,
and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000
in 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011.
7. What was Wasser's total share of net income for 2010?
A. $63,000.
B. $53,000.
C. $58,000.
D. $29,000.
E. $51,000.
8. What was Nolan's total share of net income for 2010?
A. $63,000.
B. $53,000.
C. $58,000.
D. $29,000.
E. $51,000.
9. What was Cleary's total share of net income for 2010?

A. $63,000.
B. $53,000.
C. $58,000.
D. $29,000.
E. $51,000.
10. What was Nolan's capital balance at the end of 2010?
A. $200,000.
B. $224,000.
C. $238,000.
D. $246,000.
E. $254,000.
11. What was Wasser's capital balance at the end of 2010?
A. $150,000.
B. $160,000.
C. $165,000.
D. $213,000.
E. $201,000.
12. What was Cleary's capital balance at the end of 2010?
A. $100,000.
B. $117,000.
C. $119,000.
D. $129,000.
E. $153,000.
13. What was the total capital balance for the partnership at December 31, 2010?
A. $600,000
B. $564,000
C. $535,000
D. $523,000
E. $545,000
14. What was the amount of interest attributed to Wasser for 2011?
A. $17,600
B. $18,800
C. $20,100
D. $17,800
E. $30,100
15. What was Wasser's total share of net income for 2011?
A. $34,420.
B. $75,540.
C. $65,540.
D. $70,040.
E. $61,420.
16. What was the remainder portion of net income allocated to Nolan for 2011?
A. $45,440
B. $58,040
C. $70,040
D. $72,000
E. $82,040
17. What was Nolan's total share of net income for 2011?
A. $34,420.
B. $75,540.
C. $65,540.
D. $70,040.
E. $61,420.
18. What was Cleary's total share of net income for 2011?
A. $34,420.
B. $75,540.
C. $65,540.
D. $70,040.
E. $61,420.
19. What was Nolan's capital balance at the end of 2011?
A. $139,420.
B. $246,000.
C. $276,540.
D. $279,440.
E. $304,040.
20. What was Wasser's capital balance at the end of 2011?

A. $201,000.
B. $263,520.
C. $264,540.
D. $304,040.
E. $313,780.
21. What was Cleary's capital account balance at the end of 2011?
A. $163,420.
B. $151,420.
C. $139,420.
D. $100,000.
E. $142,000.
22. What was the total capital balance for the partnership at December 31, 2011?
A. $852,000
B. $780,000
C. $708,000
D. $744,000
E. $594,000
23. What was the amount of interest attributed to Cleary for 2012?
A. $15,142
B. $13,942
C. $12,942
D. $14,142
E. $10,000
24. Jell and Dell were partners with capital balances of $600 and $800 and an income sharing ratio of 2:3. They admitted Zell to a 30% interest
in the partnership, and the total amount of goodwill credited to the original partners was $700. What amount did Zell contribute to the business?
A. $900.
B. $560.
C. $600.
D. $590.
E. $630.
25. Jerry, a partner in the JSK partnership, begins the year on January 1, 2011 with a capital balance of $20,000. The JSK partnership agreement
states that Jerry receives 6% interest on this weighted average capital balance.
On March 1, 2011, when the partnership tax return for 2010 was completed, Jerry's capital account was credited for his share of 2010 profit of
$120,000.
Jerry withdrew this amount quarterly, beginning April 1.
On September 1, Jerry's capital account was credited with a special bonus of $60,000 for business he brought to the partnership.
What amount of interest will be attributed to Jerry for year 2011 that will go toward his profit distribution for the year? (Use a 360-day year for
calculations.)
A. $5,250
B. $6,000
C. $6,400
D. $7,000
E. $7,200
A partnership began its first year of operations with the following capital balances:
Young, Capital: $143,000
Eaton, Capital: $104,000
Thurman, Capital: $143,000
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.
26. What was Young's total share of net loss for the first year?
A. $3,900 loss.
B. $11,700 loss.
C. $10,400 loss.
D. $24,700 loss.
E. $9,100 loss.
AACSB: Analytic
AICPA FN: Measurement
Bloom's: Application
Difficulty: Medium
Learning Objective: 09-06 Allocate income to partners when interest and/or salary factors are included.
27. What was Eaton's total share of net loss for the first year?
A. $3,900 loss.
B. $11,700 loss.
C. $10,400 loss.
D. $24,700 loss.
E. $9,100 loss.
AACSB: Analytic
Difficulty: Medium
28. What was Thurman's total share of net loss for the first year?
A. $3,900 loss.
B. $11,700 loss.
C. $10,400 loss.
D. $24,700 loss.
E. $9,100 loss.
AACSB: Analytic
Difficulty: Medium
29. What was the balance in Young's Capital account at the end of the first year?
A. $120,900.
B. $118,300.
C. $126,100.
D. $80,600.
E. $111,500.
AACSB: Analytic
Difficulty: Medium
Learning Objective: 09-05 Understand the impact that the allocation of partnership income has on the partners' individual capital balances.
30. What was the balance in Eaton's Capital account at the end of the first year?
A. $120,900.
B. $118,300.
C. $126,100.
D. $80,600.
E. $111,500.
AACSB: Analytic
Difficulty: Medium
31. What was the balance in Thurman's Capital account at the end of the first year?
A. $120,900.
B. $118,300.
C. $126,100.
D. $80,600.
E. $111,500.
AACSB: Analytic
Difficulty: Medium
32. What was Young's total share of net income for the second year?
A. $17,160 income.
B. $4,160 income.
C. $19,760 income.
D. $17,290 income.
E. $28,080 income.
AACSB: Analytic
Difficulty: Hard
33. What was Eaton's total share of net income for the second year?
A. $17,160 income.
B. $4,160 income.
C. $19,760 income.
D. $17,290 income.
E. $28,080 income.
AACSB: Analytic
Difficulty: Hard
34. What was Thurman's total share of net income for the second year?
A. $17,160 income.
B. $4,160 income.
C. $19,760 income.
D. $17,290 income.
E. $28,080 income.
AACSB: Analytic
Difficulty: Hard
35. What was the balance in Young's Capital account at the end of the second year?
A. $133,380.
B. $84,760.
C. $105,690.
D. $132,860.
E. $71,760.
AACSB: Analytic
Difficulty: Medium
36. What was the balance in Eaton's Capital account at the end of the second year?
A. $133,380.
B. $84,760.
C. $105,690.
D. $132,860.
E. $71,760.
AACSB: Analytic
Difficulty: Medium
37. What was the balance in Thurman's Capital account at the end of the second year?
A. $133,380.
B. $84,760.
C. $105,690.
D. $132,860.
E. $71,760.
AACSB: Analytic
Difficulty: Medium
38. Which of the following is not a characteristic of a partnership?

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

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 09-01 Discuss the advantages and disadvantages of the partnership versus the corporate form of business.
39. Partnerships have alternative legal forms including all of the following except:
A. General Partnership.
B. Limited Partnership.
C. Subchapter S Partnership.
D. Limited Liability Partnership.
E. Limited Liability Company.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
40. Which of the following type of organization is classified as a partnership, or similar to a partnership, for tax purposes?
(I.) Limited Liability Company
(II.) Limited Liability Partnership
(III.) Subchapter S Corporation
A. II only.
B. II and III.
C. I and II.
D. I and III.
E. I, II, and III.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Medium
41. Which of the following statements is correct regarding the admission of a new partner?
A. A new partner must purchase a partnership interest directly from the business.
B. The right of co-ownership in the business property can be transferred to a new partner without the consent of other existing partners.
C. The right to participate in management of the business can be conveyed without the consent of other existing partners.
D. The right to share in profits and losses can be sold to a new partner without the consent of other existing partners.
E. A new partner always pays book value.

Bloom's: Comprehension
Difficulty: Medium
Learning Objective: 09-03 Prepare the journal entry to record the initial capital investment made by a partner.
42. Withdrawals from the partnership capital accounts are typically not used
A. to reward partners for work performed in the business.
B. to reduce the partners' capital account balances at the end of an accounting period.
C. to record interest earned on a partner's capital balance.
D. to reduce the basic investment that has been made in the business.
E. to record the partnership's payment of a partner's personal expense such as income tax.

Difficulty: Medium
Learning Objective: 09-04 Use both the bonus method and the goodwill method to record a partner's capital investment.
43. The partnership contract for Hanes and Jones LLP provides that Hanes is to receive a bonus of 20% of net income (after the bonus) and that
the remaining net income is to be divided equally. If the partnership income before the bonus for the year is $57,600, Hanes' share of this prebonus income is:
A. $28,800.
B. $33,600.
C. $34,560.
D. $35,520.
E. $38,400.
Bonus = .20(NI-Bonus)= (.20NI)-(.20Bonus).
1.2Bonus=$11,520. Bonus=$9,600. Remainder to share equally = $48,000. Hanes receives $24,000+$9,600 = $33,600
AACSB: Analytic
Difficulty: Medium
44. The partners of Apple, Bere, and Carroll LLP share net income and losses in a 5:3:2 ratio, respectively. The capital account balances on
January 1, 2011, were as follows:
The carrying amounts of the assets and liabilities of the partnership are the same as their current fair values. Dorr will be admitted to the
partnership with a 20% capital interest and a 20% share of net income and losses in exchange for a cash investment. The amount of cash that Dorr
should invest in the partnership is:
A. $25,000.
B. $30,000.
C. $37,500.
D. $75,000.
E. $90,000.
($150,000/.8=$187,500. $187,500 - $150,000 = $37,500 to invest)
AACSB: Analytic
Difficulty: Medium
Learning Objective: 09-09 Prepare journal entries to record a new partner's admission by a contribution made directly to the partnership.
45. The appropriate format of the December 31, 2010 closing entry for John & Hope Limited Liability Partnership, whose two partners had
withdrawn their salaries from the partnership during the year is:
A. A Above.
B. B Above.
C. C Above.
D. D Above.
AACSB: Analytic
Difficulty: Medium
46. When Danny withdrew from John, Daniel, Harry, and Danny, LLP, he was paid $80,000, although his capital account balance was only
$60,000. The four partners shared net income and losses equally. The journal entry to record the effect on John's capital due to Danny's
withdrawal would include :
A. $6,667 debit to John, Capital.
B. $6,667 credit to John, Capital.
C. $20,000 debit to John, Capital.
D. $5,000 debit to John, Capital.
E. $5,000 credit to John, Capital.
($80,000 - $60,000) 3 = $6,667
AACSB: Analytic
Difficulty: Medium
Learning Objective: 09-10 Prepare journal entries to record the withdrawal of a current partner.
47. Max, Jones and Waters shared profits and losses 20%, 40%, and 40% respectively and their partnership capital balance is $10,000, $30,000
and $50,000 respectively. Max has decided to withdraw from the partnership. An appraisal of the business and its property estimates the fair value
to be
$200,000. Land with a book value of $30,000 has a fair value of $45,000. Max has agreed to receive $20,000 in exchange for her partnership
interest after revaluation. At what amount should land be recorded on the partnership books?
A. $20,000.
B. $30,000.
C. $45,000.
D. $50,000.
E. $200,000.
Land will be recorded at the fair value of $45,000.
AACSB: Analytic
Difficulty: Easy
The capital account balances for Donald & Hanes LLP on January 1, 2011, were as follows:
Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to admit May to the partnership with a 35%
interest in partnership capital and net income. May invested $100,000 cash, and no goodwill was recognized.
48. What is the balance of May's capital account after the new partnership is created?
A. $84,000.
B. $100,000.
C. $140,000.
D. $176,000.
E. $200,000.
AACSB: Analytic
Difficulty: Easy
49. What is the balance of Donald's capital account after the new partnership is created?
A. $84,000.
B. $100,000.
C. $140,000.
D. $176,000.
E. $200,000.
AACSB: Analytic
Difficulty: Medium
50. What is the balance of Hane's capital account after the new partnership is created?
A. $84,000.
B. $100,000.
C. $140,000.
D. $176,000.
E. $200,000.
AACSB: Analytic
Difficulty: Medium
51. What is the new total balance of the partnership accounts?

A. $84,000.
B. $140,000.
C. $176,000.
D. $200,000.
E. $400,000.
AACSB: Analytic
Difficulty: Easy
52. Which of the following could be used as a basis to allocate profits among partners who are active in the management of the partnership?
1) Allocation of salaries.
2) The number of years with the partnership.
3) The amount of time each partner works.
4) The average capital invested.
A. 1 and 2.
B. 1 and 3.
C. 1, 2, and 4.
D. 1, 3, and 4.
E. 1, 2, 3, and 4.

Bloom's: Knowledge
Difficulty: Easy
P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%,
20%, and 50%, respectively, when they agree to admit C for a 20% interest.
53. If C is to contribute an amount equal to his book value share of the new partnership, how much should C contribute?
A. $22,000
B. $20,000
C. $25,000
D. $18,000
E. $10,000
AACSB: Analytic
Difficulty: Easy
54. C contributes $38,000 to the partnership and the bonus method is used. What amount will be credited for C's beginning capital balance?
A. $20,000
B. $25,000
C. $27,600
D. $32,600
E. $38,000
AACSB: Analytic
Difficulty: Easy
55. If C contributes $40,000 to the partnership and the goodwill method is used, what amount will be debited for goodwill?
A. $15,000
B. $20,000
C. $25,000
D. $28,000
E. $60,000
AACSB: Analytic
Difficulty: Medium
56. C contributes $10,000 to the partnership and the goodwill method is used. What will be the result of the goodwill calculation?
A. Goodwill of $15,000; split among the original partners.
B. Goodwill of $15,000; all to C.
C. Goodwill of $15,000; split among all four partners: P, L, O, and C.
D. Goodwill of $12,000; all to C.
E. Goodwill of $12,000; split among original partners.
AACSB: Analytic
Difficulty: Hard
Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and $60,000, respectively. The partners share profits and losses
20%, 40%, and 40% respectively.
57. Roberts retires and is paid $160,000 based on an independent appraisal of the business. If the goodwill method is used, what is the capital
balance of Peter?
A. $20,000.
B. $60,000.
C. $110,000.
D. $120,000.
E. $230,000.
Roberts receives an additional $60,000 above her capital balance. Since she is assigned 40 percent of all profits and losses, this extra allocation
indicates total goodwill of $150,000, which must be split among all partners.
40% of Goodwill = $60,000
.40 G = $60,000
G = $150,000 and Peter receives 20% = $30,000.
Peter's balance = $80,000 + $30,000 = $110,000.
AACSB: Analytic
Difficulty: Medium
58. Roberts retires and is paid $160,000 based on an independent appraisal of the business. If the goodwill method is used, what is the capital
balance of Dana?
A. $20,000.
B. $60,000.
C. $110,000.
D. $120,000.
E. $230,000.
.40 G = $60,000
G = $150,000 and Dana receives 40% = $60,000.
Dana's balance = $60,000 + $60,000 = $120,000.
AACSB: Analytic
Difficulty: Medium
59. What is the total partnership capital after Roberts retires receiving $160,000 and using the goodwill method?
A. $290,000.
B. $176,000.
C. $80,000.
D. $120,000.
E. $230,000.
.40 G = $60,000
G = $150,000
Total capital is $240,000 + goodwill $150,000 = $390,000.
Roberts receives $160,000 and partnership capital is then $390,000-$160,000 = $230,000.
AACSB: Analytic
Difficulty: Medium
Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000 respectively. The partners share profits and losses
20%, 40%, and 40% respectively.
60. Anne retires and is paid $80,000 based on an independent appraisal of the business. If the goodwill method is used, what is the capital of the
remaining partners?
A. Donald, $55,000; Todd, $60,000
B. Donald, $40,000; Todd, $30,000
C. Donald, $65,000; Todd, $55,000
D. Donald, $15,000; Todd, $30,000
Anne receives an additional $30,000 above her capital balance. Since she is assigned 40 percent of all profits and losses, this extra allocation
.40 G = $30,000
G = $75,000
Donald = 20% Goodwill = $15,000. $40,000 + $15,000 = $55,000.
Todd = 40% Goodwill = $30,000. $30,000 + $30,000 = $60,000.
AACSB: Analytic
Difficulty: Medium
61. Anne retires and is paid $80,000 based on the terms of the original partnership agreement. If the bonus method is used, what is the capital of
the remaining partners?
A. Donald, $40,000; Todd, $30,000
B. Donald, $30,000; Todd, $10,000
C. Donald, $50,000; Todd, $50,000
D. Donald, $24,000; Todd, $18,000
The $30,000 bonus is deducted from the remaining partners according to their relative profit and loss ratio. Donald = 20% and Todd = 40% which
is a 1/3, 2/3 split.
Donald = $40,000 - (1/3 x $30,000) = $30,000.
Todd = $30,000 - (2/3 x $30,000) = $10,000.
AACSB: Analytic
Difficulty: Medium
62. What is the total partnership capital after Anne retires receiving $80,000 and using the bonus method?
A. $70,000.
B. $40,000.
C. $60,000.
D. $80,000.
E. $42,000.
AACSB: Analytic
Difficulty: Medium
Essay Questions
63. What is the dissolution of a partnership?

The dissolution of a partnership is the breakup of the partnership caused by any change in the members that make up the partnership.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 09-07 Discuss the meaning of partnership dissolution and understand that a dissolution
64. By what methods can a person gain admittance to a partnership?

A person can gain admittance to a partnership by purchasing all or part of a current partner's interest or by investing assets in the partnership.

Bloom's: Knowledge
Difficulty: Easy
65. What events cause the dissolution of a partnership?

The dissolution of a partnership occurs whenever there is a change in the members that make up the partnership. Dissolution does not mean going
out of business, although, on occasion, dissolution would be accompanied by liquidation of assets and termination of the business. Dissolution
would occur whenever a new partner is admitted to the partnership, dissolving one partnership and forming a new one. Dissolution also occurs
when a partner leaves the partnership or when a partner dies or retires. The Articles of Partnership may allow the partners to force dissolution
under some circumstances.

AICPA BB: Legal
Bloom's: Knowledge
Difficulty: Easy
Learning Objective: 09-07 Discuss the meaning of partnership dissolution and understand that a dissolution
66. For what events or conditions should the Articles of Partnership make provision?
The Articles of Partnership should be a comprehensive document that is fair to all the partners. It should contain the following provisions:
(A.) The amounts that will be invested in the partnership by the founding partners.
(B.) The amounts of withdrawals that partners can make. Limiting the amount of withdrawals causes the partners to maintain a reasonable
investment in the partnership.
(C.) The division of income or loss between the partners.
(D.) Guidelines for admission of new partners or withdrawal or retirement of partners.
(E.) In some cases, guidelines for division of assets when the partnership liquidates.
In addition, the Articles of Partnership should specify how much time each partner will spend in the business; the responsibilities of each partner;
and procedures for resolution of disputes between partners.

AICPA BB: Legal
AICPA FN: Risk Analysis
Bloom's: Knowledge
Difficulty: Medium
Learning Objective: 09-02 Describe the purpose of the articles of partnership and list specific items that should be included in this agreement.
67. How is accounting for a partnership different from accounting for a corporation?
Financial accounting for a partnership differs from corporate accounting only in accounting for owners' equity. A partnership does not sell capital
stock and does not have a retained earnings account. Each partner will have a capital account and a drawing account. On the balance sheet, the
balance in each of the partner's capital accounts should be reported. The accountant for a partnership must divide income or loss among partners,
following the provisions of the Articles of Partnership. Income tax accounting differs between corporations and partnerships. A corporation is a
taxable entity and must file an income tax return. A partnership is not a taxable entity but is required to file an informational return that reports the
various amounts of revenues and expenses attributed to each partner.

Difficulty: Medium
68. Why are the terms of the Articles of Partnership important to partners?
The Articles of Partnership contain terms that help to protect the interests of each partner and the longevity and profitability of the business. One
of the most important terms in the Articles of Partnership is the provision for division of income or loss. The amount of income or loss assigned
to partners affects the balances in their capital accounts and may affect the amount of withdrawals the partners can make and the assets they
receive upon the liquidation of the partnership. The terms in the Articles of Partnership help to prevent one partner from taking advantage of other
partners.

AICPA BB: Legal
Difficulty: Medium
69. Brown and Green are forming a business as partners. If they do not create a formal written partnership agreement, what risks are they
exposing themselves to?
The Articles of Partnership should help every partner protect his or her interests. Because of mutual agency and unlimited liability, being a partner
involves some risk. If a partnership becomes insolvent, any or all of the partners may be required to use personal assets to settle partnership
liabilities. The Articles of Partnership can require each partner to maintain his or her investment in the partnership and to meet other
responsibilities, such as working in the business. With a formal written agreement, each partner would have recourse if another partner does not
fulfill the terms in the Articles of Partnership.
AACSB: Analytic
AICPA BB: Legal
Difficulty: Medium
70. What theoretical argument could be made against the recognition of goodwill when there is a change in the ownership of a partnership?
Goodwill should be recognized only when a business is purchased in an arms-length transaction a transaction between independent parties.
Generally, partners are not independent parties. Transactions between partners or between a partner and the partnership may be influenced by
factors other than fair value and bargaining between independent parties. For example, if one partner has been causing trouble for a partnership,
the other partners might agree to pay more than fair value to convince that partner to leave the business. The amount of goodwill that could be
calculated for such a transaction would not be an indication of the fair value of the business.

Difficulty: Medium
Learning Objective: 09-04 Use both the bonus method and the goodwill method to record a partner's capital investment.
71. Under what circumstances does a partner's balance in his or her capital account have practical consequences for the partner?
The most direct practical consequence of a partner's capital account balance occurs when the partnership is liquidated. After assets are sold and
liabilities are paid, each partner receives the balance in his or her capital account. The balance in the capital account may also influence the
division of income or loss each year and could affect the amount of cash each partner is allowed to withdraw from the partnership.

Difficulty: Easy
72. Reed, Sharp, and Tucker were partners with capital account balances of $80,000, $100,000, and $70,000, respectively. They agreed to admit
Upton to the partnership. Upton purchased 30% of each partner's interest, with payments directly to Reed, Sharp, and Tucker of $32,000,
$40,000, and $28,000, respectively. Before the admission of Upton, the profit and loss sharing ratio was 2:3:2. The partners agreed to use the
bonus method to account for the admission of Upton to the partnership.
Required:
Prepare the journal entry to record the admission of Upton to the partnership.
AACSB: Analytic
Difficulty: Medium
Learning Objective: 09-08 Prepare journal entries to record the acquisition by a new partner of either all or a portion of a current partner's
interest.
73. Jipsom and Klark were partners with capital account balances of $80,000 and $100,000, respectively. Looney directly paid $32,000 to Jipsom
and $40,000 to Klark for 30% of their interests in the partnership. Jipsom and Klark shared income in the ratio of 2:3. They believed that
revaluation of the partnership was appropriate when a new partner was admitted.
Required:
Prepare the journal entries to record the admission of Looney to the partnership.
AACSB: Analytic
Difficulty: Hard
interest.
Norr and Caylor established a partnership on January 1, 2010. Norr invested cash of $100,000 and Caylor invested $30,000 in cash and
equipment with a book value of $40,000 and fair value of $50,000. For both partners, the beginning capital balance was to equal the initial
investment. Norr and Caylor agreed to the following procedure for sharing profits and losses:
- 12% interest on the yearly beginning capital balance
- $10 per hour of work that can be billed to the partnership's clients
- the remainder divided in a 3:2 ratio
The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month.
For 2010, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400 billable hours. In 2011, the partnership's
income was $24,000, and Norr and Caylor worked 800 and 1,200 billable hours respectively. Each partner withdrew $1,000 per month
throughout 2010 and 2011.
74. Determine the amount of net income allocated to each partner for 2010.
Distribution of income for 2010:
AACSB: Analytic
Difficulty: Medium
75. Determine the balance in both capital accounts at the end of 2010.
Capital account balances at the end of 2010:
AACSB: Analytic
Difficulty: Medium
76. Determine the amount of net income allocated to each partner for 2011. Round all calculations to the nearest whole dollar.
Distribution of income for 2011:
AACSB: Analytic
Difficulty: Medium
77. Determine the balance in both capital accounts at the end of 2011 to the nearest dollar.
Capital account balances at the end of 2011:
AACSB: Analytic
Difficulty: Medium
The ABCD Partnership has the following balance sheet at January 1, 2010, prior to the admission of new partner, Eden.
78. Eden contributes $49,000 into the partnership for a 25% interest. The four original partners share profits and losses equally. Using the bonus
method, determine the balances for each of the five partners after Eden joins the partnership.
Eden's contribution of $49,000 into the partnership, raises the total partnership net assets to $400,000. Eden's capital account is credited, by
agreement, for 25% of the partnership's total tangible assets, or $100,000.
The journal entry to record the admission of Eden is:
The capital balances of each of the five partners after Eden's entry into the partnership are as follows:
AACSB: Analytic
Difficulty: Medium
79. Eden contributed $124,000 in cash to the business to receive a 20% interest in the partnership. Goodwill was to be recorded. The four original
partners shared all profits and losses equally. After Eden made his investment, what were the individual capital balances?
Eden's contribution of $124,000 to the partnership increases the partnership's net assets to $475,000. The implied value of the partnership is
$620,000 ($124,000 20%). Goodwill of $145,000 ($620,000 - $475,000) resulted from this transaction.
The first entry requires that the goodwill be allocated to each of the original four partners according to their profit and loss sharing percentages.
As indicated in the problem, the four original partners share profits and losses equally.
After allocating the goodwill to each of the original four partners, their partnership capital balances are as follows:
The second step is to record Eden's cash contribution and to record Eden's capital account balance:
AACSB: Analytic
Difficulty: Medium
80. Eden acquired a 20% interest in the partnership by contributing a total of $71,500 directly to the other four partners. No goodwill is to be
recorded. Profits and losses have previously been split according to the following percentages: Adams, 15%, Barnes, 35%, Cordas, 30%, and
Davis, 20%. After Eden made his investment, what were the individual capital balances?
The partnership's total net assets are still $351,000, because Eden's $71,500 went to the partners. Using the book value method, each of the
original partners will give up 20% of their current capital balance to Eden. The journal entry is:
The partners' balances following the admission of Eden are:
AACSB: Analytic
Difficulty: Medium
interest.
81. Eden acquired a 20% interest in the partnership by contributing a total of $71,500 directly to the other four partners. Goodwill is to be
recorded. Profits and losses have previously been split according to the following percentages: Adams, 15%, Barnes, 35%, Cordas, 30%, and
Davis, 20%. After Eden made his investment, what were the individual capital balances?
Eden's contribution of $71,500 will go to the original four partners, not into the partnership. Therefore, the partnership's total net assets remain
$351,000. The implied value of the partnership, based on Eden's contribution, is $357,500 ($71,500 20%). Goodwill arising out of this
transaction is $6,500.
First, the goodwill should be allocated to each of the original four partners:
The adjusted balances for the four original partners, after allocating goodwill, are:
The next step is to allocate 20% of each of the original partners' balances to Eden:
The partners' capital balances after admitting Eden are:
AACSB: Analytic
Difficulty: Medium
interest.
Assume the partnership of Dean, Hardin, and Roth has been in existence for a number of years. Dean decides to withdraw from the partnership
when the partners' capital balances are as follows:
An appraisal of the business and its property estimates the fair value to be $100,000. Dean has agreed to receive $64,000 in exchange for his
partnership interest.
82. Prepare the journal entry for the payment to Dean in the dissolution of his partnership interest, assuming the bonus method is to be applied.
AACSB: Analytic
Difficulty: Medium
83. What are the remaining partners' capital balances after Dean's interest is dissolved, assuming the bonus method is applied?
Hardin: $12,600 ($15,000 - $2,400)
Roth: 23,400 ($25,000 - $1,600)
AACSB: Analytic
Difficulty: Medium
Assume the partnership of Howell, Madrid, and Waldrop has been in existence for a number of years. Howell decides to withdraw from the
partnership when the partners' capital balances are as follows:
An appraisal of the business and its net assets estimates the fair value to be $154,000. Land with a book value of $20,000 has a fair value of
$35,000. Howell has agreed to receive $84,000 in exchange for her partnership interest.
84. Prepare the journal entries for the dissolution of Howell's partnership interest, assuming the goodwill method is to be applied.
AACSB: Analytic
Difficulty: Medium
85. What are the remaining partners' capital balances after Howell's interest is dissolved, assuming the goodwill method is applied?
Madrid: 33,000 ($15,000 + $18,000)
Waldrop: 37,000 ($25,000 + $12,000)
AACSB: Analytic
Difficulty: Medium
On January 1, 2011, Lamb and Mona LLP admitted Noris to a 20% interest in net assets for an investment of $50,000 cash. Prior to the
admission of Noris, Lamb and Mona had net assets of $100,000 and an income-sharing ratio of 25% to Lamb and 75% to Mona. After the
admission of Noris, the partnership contract included the following provisions:
Salary of $40,000 a year to Noris.
Remaining net income in ratio Lamb 20%, Mona 60%, Noris 20%
During the fiscal year ended December 31, 2011, the partnership had income of $90,000 prior to recognition of salary to Noris.
86. Record the journal entry for the admission of Noris. Goodwill is not to be recorded.
AACSB: Analytic
Difficulty: Easy
87. Record the journal entry to allocate the salary of Noris.
AACSB: Analytic
Difficulty: Easy
88. Record the journal entry to record the remainder of net income to the capital accounts.

1

Uploaded by

Document Information

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

1

Uploaded by

Copyright:

Available Formats

Asaweqwe xcvc zbvxcvbxcvb of Quincy to the partnership?

A. The bonus method.

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

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

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

AACSB: Reflective thinking

AACSB: Reflective thinking

AACSB: Reflective thinking

AACSB: Reflective thinking

AACSB: Reflective thinking

51. What is the new total balance of the partnership accounts?

AACSB: Reflective thinking

63. What is the dissolution of a partnership?

AACSB: Reflective thinking

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

AACSB: Reflective thinking

65. What events cause the dissolution of a partnership?

AACSB: Reflective thinking

AACSB: Reflective thinking

AACSB: Reflective thinking

AACSB: Reflective thinking

AACSB: Reflective thinking

AACSB: Reflective thinking

The partners' balances following the admission of Eden are:

The partners' capital balances after admitting Eden are:

87. Record the journal entry to allocate the salary of Noris.

You might also like