Question 1

The Leo,Mark and Natalie Partnership had the following capital balances and profit/loss sharing percentages:
  Newsome is going to buy into the partnership by paying $200,000 for a 20% ownership in the partnership.
Required:
1.If Newsome pays the partnership directly,what are the four partner capital balances immediately following Newsome's admission to the partnership using the bonus method? Assume the partnership assets are not revalued.
2.If Newsome pays the partnership directly,what are the four partner capital balances immediately following Newsome's admission to the partnership using the goodwill method? Assume the partnership assets are revalued.The $200,000 amount paid by Newsome is fair value for a 20% share of the partnership.

Accepted Answer

Requirement 1
If Newsome pays the partnership directly and the bonus method is used,then the contribution of $200,000 is added to net assets of $500,000 to determine the net assets after contribution of $700,000.Newsome receives 20% of this amount,or $140,000,and the remaining $60,000 from Newsome's contribution is split among the original partners as a bonus,in their original share percentages.
  Requirement 2
If Newsome pays the partnership directly and the goodwill method is used,then the implied value of the new partnership is first calculated by taking the contribution of $200,000 and dividing by Newsome's expected percentage of ownership,20%,to arrive at an implied partnership value of $1,000,000.Since the tangible assets of the new partnership will be $700,000 (see Requirement 1),Goodwill is determined to be $300,000.Goodwill is allocated to the three original partners,and Newsome's capital account is credited with his payment.

Question 2

The death of a partner results in a dissociation and requires a settlement with the estate of the deceased partner.

Accepted Answer

A) True 
 B)False  True

Question 3

If the partnership agreement provides a formula for the computation of a bonus to the partners,the bonus would be computed

Accepted Answer

A)  next to last,because the final allocation is the distribution of the profit residual.
B)  before income tax allocations are made.
C)  after the salary and interest allocations are made.
D)  in any manner agreed to by the partners in the partnership agreement. D

Question 4

Use the following information to answer the question(s) below.

A summary balance sheet for the Lemon, Mango, and Nobb partnership appears below. Lemon, Mango, and Nobb share profits and losses in a ratio of 2:3:5, respectively.
The partners agree to admit Oran for a one-fifth interest. The fair market value of partnership land is appraised at $200,000 and the fair market value of inventory is $175,000. The assets are to be revalued prior to the admission of Oran and there is $30,000 of goodwill that attaches to the old partnership.

-What will the profit and loss sharing ratios be after Oran's investment?

Accepted Answer

A)  1:2:4:2
B)  2:3:5:2
C)  3:4:6:2
D)  4:6:10:5

Question 5

Use the following information to answer the question(s) below.

A summary balance sheet for the Lemon, Mango, and Nobb partnership appears below. Lemon, Mango, and Nobb share profits and losses in a ratio of 2:3:5, respectively.
The partners agree to admit Oran for a one-fifth interest. The fair market value of partnership land is appraised at $200,000 and the fair market value of inventory is $175,000. The assets are to be revalued prior to the admission of Oran and there is $30,000 of goodwill that attaches to the old partnership.

-By how much will the capital accounts of Lemon,Mango,and Nobb increase,respectively,due to the revaluation of the assets and the recognition of goodwill?

Accepted Answer

A)  The capital accounts will increase by $50,000 each.
B)  The capital accounts will increase by $60,000 each.
C)  $36,000,$54,000,and $90,000
D)  $40,000,$50,000,and $60,000

Question 6

Use the following information to answer the question(s) below.

Bertram and Ernest share profits and losses equally after salary and interest allowances. Bertram and Ernest receive salary allowances of $40,000 and $60,000, respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are calculated at the beginning of each month, regardless of when additional capital contributions or permanent withdrawals are made subsequently within the month. Partners' drawings of $3,000 per month are not used in determining the average capital balances. Total net income for 2014 is $240,000.
 Permanent withdrawals of capital:
  Additional investments of capital:
 
-If the average capital balances for Bertram and Ernest are $200,000 and $240,000,what will the total partnership profit allocations be for Bertram and Ernest in 2014?

Accepted Answer

A)  $100,000 and $140,000
B)  $108,000 and $132,000
C)  $120,000 and $120,000
D)  $140,000 and $100,000

Question 7

Under a partnership,each partner has mutual agency and limited liability.

Accepted Answer

A) True 
 B)False

Question 8

Austin contributes his computer equipment to the landscaping partnership he starts with Bentley.At what amount should the computer equipment be credited to Austin's partnership capital?

Accepted Answer

A)  The tax basis
B)  The fair value at the date of contribution
C)  Austin's original cost
D)  At the amount that Bentley contributes,with the assumption that they both contribute equally to the partnership

Question 9

Partnerships do not pay federal taxes but must submit financial information to the IRS.

Accepted Answer

A) True 
 B)False

Question 10

Required:
1.Prepare a schedule to allocate income to the partners assuming that partnership net income for 2014 is $330,000.
2.Prepare a journal entry to distribute the partnership's income to the partners (assume that an Income Summary account is used by the partnership).

Accepted Answer

The answer of Required:
1.Prepare a schedule to allocate income to...

Question 11

Required:
1.Prepare a schedule to allocate income or loss to the partners assuming that the partnership incurs a net loss of $36,000 for 2014.
2.Prepare a journal entry to distribute the partnership's loss to the partners (assume that an Income Summary account is used by the partnership).

Accepted Answer

The answer of Required:
1.Prepare a schedule to allocate income or...

Question 12

A limited partnership involves at least one limited partner who is an investor whose risk is limited to his equity investment in the partnership.

Accepted Answer

A) True 
 B)False

Question 13

Use the following information to answer the question(s) below.

A summary balance sheet for the Lemon, Mango, and Nobb partnership appears below. Lemon, Mango, and Nobb share profits and losses in a ratio of 2:3:5, respectively.
The partners agree to admit Oran for a one-fifth interest. The fair market value of partnership land is appraised at $200,000 and the fair market value of inventory is $175,000. The assets are to be revalued prior to the admission of Oran and there is $30,000 of goodwill that attaches to the old partnership.

-How much cash must Oran invest to acquire a one-fifth interest?

Accepted Answer

A)  $235,000
B)  $141,000
C)  $293,750
D)  $301,250

Question 14

The dissolution of a partnership involves selling off the assets,settling liabilities,and distributing the proceeds to the partners.

Accepted Answer

A) True 
 B)False

Question 15

Use the following information to answer the question(s) below.

Quincy has decided to retire from the partnership of Quincy, Robert, and Sam. The partnership will pay Quincy $400,000. Total partnership capital should be revalued based on the excess payment to Quincy. (Assume the book values of the assets listed below equals fair values.) A summary balance sheet for the Quincy, Robert, and Sam partnership appears below. Quincy, Robert, and Sam share profits and losses in a ratio of 1:1:3, respectively.

-What goodwill will be recorded?

Accepted Answer

A)  $ 80,000
B)  $240,000
C)  $320,000
D)  $400,000

Question 16

Dan and Ellie share partnership profits and losses at 70% and 30%,respectively.The partners agree to admit Fran into the partnership for a 50% interest in capital and earnings.Capital accounts immediately before the admission of Fran are:
  Required:
1.Prepare the journal entry(s)for the admission of Fran to the partnership assuming Fran invested $800,000 for the ownership interest,and that this is a fair price for that share of the partnership to be acquired.Fran paid the money directly to Dan and to Ellie for 50% of each of their respective capital interests.The partnership records goodwill.
2.Prepare the journal entry(s)for the admission of Fran to the partnership assuming Fran invested $1,000,000 for the ownership interest.Fran paid the money to the partnership for a 50% interest in capital and earnings.Assume the valuation is based on the capital of the current partnership,which is fairly valued.The partnership records goodwill.
3.Prepare the journal entry(s)for the admission of Fran to the partnership assuming Fran invested $1,400,000 for the ownership interest,and that this is a fair price for that share of the partnership to be acquired.Fran paid the money to the partnership for a 50% interest in capital and earnings.The partnership records goodwill.

Accepted Answer

The answer of Dan and Ellie share partnership profits and...

Question 17

Anna and Bess share partnership profits and losses at 60% and 40%,respectively.The partners agree to admit Cal into the partnership for a 50% interest in capital and earnings.Capital accounts immediately before the admission of Cal are:
  Required:
1.Prepare the journal entry(s)for the admission of Cal to the partnership assuming Cal invested $400,000 for the ownership interest,and that this is a fair price for that share of the partnership to be acquired.Cal paid the money directly to Anna and to Bess for 50% of each of their respective capital interests.The partnership records goodwill.
2.Prepare the journal entry(s)for the admission of Cal to the partnership assuming Cal invested $500,000 for the ownership interest.Cal paid the money to the partnership for a 50% interest in capital and earnings.Assume the valuation is based on the capital of the current partnership,which is fairly valued.The partnership records goodwill.
3.Prepare the journal entry(s)for the admission of Cal to the partnership assuming Cal invested $700,000 for the ownership interest,and that this is a fair price for that share of the partnership to be acquired.Cal paid the money to the partnership for a 50% interest in capital and earnings.The partnership records goodwill.

Accepted Answer

The answer of Anna and Bess share partnership profits and...

Question 18

A summary balance sheet for the partnership of Maddy,Nelson and Olsen on December 31,2014 is shown below.Partners Maddy,Nelson and Olsen allocate profit and loss in their respective ratios of 9:6:10.
Assets
  Equities
  The partners agree to admit Poosh for a one-tenth interest.The fair market value for partnership land is $180,000,and the fair market value of the inventory is $150,000.
Required:
1.Record the entry to revalue the partnership assets prior to the admission of Poosh.
2.Calculate how much Poosh will have to invest to acquire a 10% interest.
3.Assume the partnership assets are not revalued.If Poosh paid $200,000 to the partnership in exchange for a 10% interest,what is the bonus that is allocated to each partner's capital account?

Accepted Answer

The answer of A summary balance sheet for the partnership...

Question 19

When partners withdraw money on a weekly basis it can be referred to a drawing allowance which requires a debit to the drawing account.

Accepted Answer

A) True 
 B)False

Question 20

Use the following information to answer the question(s) below.

Bertram and Ernest share profits and losses equally after salary and interest allowances. Bertram and Ernest receive salary allowances of $40,000 and $60,000, respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are calculated at the beginning of each month, regardless of when additional capital contributions or permanent withdrawals are made subsequently within the month. Partners' drawings of $3,000 per month are not used in determining the average capital balances. Total net income for 2014 is $240,000.
 Permanent withdrawals of capital:
  Additional investments of capital:
 
-If the average capital for Bertram and Ernest from the above information is $224,000 and $238,000,respectively,what will be the total amount of profit allocated to salary and interest distributions?

Accepted Answer

A)  $93,800
B)  $146,200
C)  $218,200
D)  $240,000

Exam 16: Partnerships - Formation,operations,and Changes in Ownership Interests

The death of a partner results in a dissociation and requires a settlement with the estate of the deceased partner.

If the partnership agreement provides a formula for the computation of a bonus to the partners,the bonus would be computed

Under a partnership,each partner has mutual agency and limited liability.

Austin contributes his computer equipment to the landscaping partnership he starts with Bentley.At what amount should the computer equipment be credited to Austin's partnership capital?

Partnerships do not pay federal taxes but must submit financial information to the IRS.

Required: 1.Prepare a schedule to allocate income to the partners assuming that partnership net income for 2014 is $330,000. 2.Prepare a journal entry to distribute the partnership's income to the partners (assume that an Income Summary account is used by the partnership).

Required: 1.Prepare a schedule to allocate income or loss to the partners assuming that the partnership incurs a net loss of $36,000 for 2014. 2.Prepare a journal entry to distribute the partnership's loss to the partners (assume that an Income Summary account is used by the partnership).

A limited partnership involves at least one limited partner who is an investor whose risk is limited to his equity investment in the partnership.

The dissolution of a partnership involves selling off the assets,settling liabilities,and distributing the proceeds to the partners.

When partners withdraw money on a weekly basis it can be referred to a drawing allowance which requires a debit to the drawing account.