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Chapter 14 Partnerships: Formation and Operation Multiple Choice Questions 1. Cherryhill and Hace had been partners for several years, and they decided to admit Quincy to the partnership. The accountant for the partnership believed that the dissolved partnership and the newly formed partnership were two separate entities. What method would the accountant have used for recording the admission 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.

7. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Wasser's total share of net income for 2012? A. $63,000. B. $53,000. C. $58,000. D. $29,000. E. $51,000. 8. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Nolan's total share of net income for 2012? A. $63,000. B. $53,000. C. $58,000. D. $29,000. E. $51,000. 9.

Cleary, Wasser, and Nolan formed a partnership on

January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Cleary's total share of net income for 2012? A. $63,000. B. $53,000. C. $58,000. D. $29,000. E. $51,000. 10. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Nolan's capital balance at the end of 2012? A. $200,000. B. $224,000. C. $238,000. D. $246,000. E. $254,000. 11. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Wasser's capital balance at the end of 2012? A. $150,000. B. $160,000. C. $165,000. D. $213,000. E. $201,000. 12. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Cleary's capital balance at the end of 2012? A. $100,000. B. $117,000. C. $119,000. D. $129,000. E. $153,000. 13. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was the total capital balance for the partnership at December 31, 2012? A. $600,000 B. $564,000 C. $535,000 D. $523,000 E. $545,000 14. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was the amount of interest attributed to Wasser for 2013? A. $17,600 B. $18,800 C. $20,100 D. $17,800 E. $30,100 15. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Wasser's total share of net income for 2013? A. $34,420. B. $75,540. C. $65,540. D. $70,040. E. $61,420. 16. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was the remainder portion of net income allocated to Nolan for 2013? A. $45,440 B. $58,040 C. $70,040 D. $72,000 E. $82,040 17. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Nolan's total share of net income for 2013? A. $34,420. B. $75,540. C. $65,540. D. $70,040. E. $61,420. 18. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Cleary's total share of net income for 2013? A. $34,420. B. $75,540. C. $65,540. D. $70,040. E. $61,420. 19. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Nolan's capital balance at the end of 2013? A. $139,420. B. $246,000. C. $276,540. D. $279,440. E. $304,040. 20. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Wasser's capital balance at the end of 2013? A. $201,000. B. $263,520. C. $264,540. D. $304,040. E. $313,780. 21. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Cleary's capital account balance at the end of 2013? A. $163,420. B. $151,420. C. $139,420. D. $100,000. E. $142,000. 22. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was the total capital balance for the partnership at December 31, 2013? A. $852,000 B. $780,000 C. $708,000 D. $744,000 E. $594,000 23. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, 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 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What will be the amount of interest attributed to Cleary for 2014? 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, 2013 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, 2013, when the partnership tax return for 2012 was completed, Jerry's capital account was credited for his share of 2012 profit of $120,000. • Jerry withdrew $5,000 quarterly, beginning March 31st. • 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 2013 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 26. 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. 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. 27. 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. 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. 28. 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. 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. 29. 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. 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. 30. 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. 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. 31. 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. 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. 32. 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. 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.

33. 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. 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. 34. 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. 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. 35. 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. 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. 36. 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. 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. 37. 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. 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. 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. 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. 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. 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 cannot 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. 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.

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. 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, 2013, 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. 45. The appropriate format of the December 31, 2012 closing entry for John & Hope Limited Liability Partnership, whose two partners had withdrawn their salaries from the partnership during the year is: A. Option A B. Option B C. Option C D. Option D

E. Option E 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. 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. 48. The capital account balances for Donald & Hanes LLP on January 1, 2013, 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. 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. 49. The capital account balances for Donald & Hanes LLP on January 1, 2013, 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. 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. 50. The capital account balances for Donald & Hanes LLP on January 1, 2013, 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. What is the balance of Hanes's capital account after the new partnership is created? A. $84,000.

B. C. D. E.

$100,000. $140,000. $176,000. $200,000.

51. The capital account balances for Donald & Hanes LLP on January 1, 2013, 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. 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. 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. 53. 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. 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 54. 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. 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 55. 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. 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 56. 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. 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. 57. 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. 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. 58. 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. 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. 59. 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. 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. 60. 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. 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 61. 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. 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. B. C. D.

Donald, $40,000; Todd, $30,000 Donald, $30,000; Todd, $10,000 Donald, $50,000; Todd, $50,000 Donald, $24,000; Todd, $18,000

62. 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. 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. 1. When a partnership is insolvent and a partner has a deficit capital balance, that partner is legally required to: A. declare personal bankruptcy. B. initiate legal proceedings against the partnership. C. contribute cash to the partnership. D. deliver a note payable to the partnership with specific payment terms. E. None of these. The partner has no legal responsibility to cover the capital deficit balance. 2. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the following balance sheet: Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to be $12,000. If the noncash assets were sold for $234,000, what amount of the loss would have been allocated to Bartle? A. $43,200.

B. C. D. E.

$46,800. $40,000. $42,400. $43,100.

3. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the following balance sheet: Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to be $12,000. The noncash assets were sold for $134,000. Which partner(s) would have had to contribute assets to the partnership to cover a deficit in his or her capital account? A. Abrams. B. Bartle. C. Creighton. D. Abrams and Creighton. E. Abrams and Bartle. 4. The Abrams, Bartle, and Creighton partnership began the process of liquidation with the following balance sheet: Abrams, Bartle, and Creighton share profits and losses in a ratio of 3:2:5. Liquidation expenses are expected to be $12,000. After the liquidation expenses of $12,000 were paid and the noncash assets sold, Creighton had a deficit of $8,000. For what amount were the noncash assets sold? A. $170,000. B. $264,000. C. $158,000. D. $146,000. E. $185,000. 5. The Keaton, Lewis, and Meador partnership had the following balance sheet just before entering liquidation:

Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. Noncash assets were sold for $180,000. Liquidation expenses were $10,000. Assume that Lewis was personally insolvent and could not contribute any assets to the partnership, while Keaton and Meador were both solvent. What amount of cash would Keaton have received from the distribution of partnership assets? A. $38,000. B. $30,000. C. $24,000. D. $34,000. E. $31,600. 6. The Keaton, Lewis, and Meador partnership had the following balance sheet just before entering liquidation: Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. Noncash assets were sold for $60,000. How much will each partner receive in the liquidation? A. Option A B. Option B C. Option C D. Option D E. Option E 7. The Keaton, Lewis, and Meador partnership had the following balance sheet just before entering liquidation: Keaton, Lewis, and Meador share profits and losses in a ratio of 2:4:4. The partnership feels confident it will be able to eventually sell the noncash assets and wants to distribute some cash before paying liabilities. How much would each partner receive of a total $60,000 distribution of cash? A. Option A B. Option B C. Option C

D. Option D E. Option E 8. The Henry, Isaac, and Jacobs partnership was about to enter liquidation with the following account balances: Estimated expenses of liquidation were $5,000. Henry, Isaac, and Jacobs shared profits and losses in a ratio of 2:4:4. What amount of cash was available for safe payments, based on the above information? A. $30,000. B. $85,000. C. $25,000. D. $35,000. E. $40,000. 9. The Henry, Isaac, and Jacobs partnership was about to enter liquidation with the following account balances: Estimated expenses of liquidation were $5,000. Henry, Isaac, and Jacobs shared profits and losses in a ratio of 2:4:4. Before liquidating any assets, the partners determined the amount of cash available for safe payments. How should the amount of safe cash payments be distributed? A. in a ratio of 2:4:4 among all the partners. B. $18,333 to Henry and $16,667 to Jacobs. C. in a ratio of 1:2 between Henry and Jacobs. D. $15,000 to Henry and $10,000 to Jacobs. E. $21,667 to Henry and $3,333 to Jacobs. 10. The Henry, Isaac, and Jacobs partnership was about to enter liquidation with the following account balances: Estimated expenses of liquidation were $5,000. Henry, Isaac, and Jacobs shared profits and losses in a ratio of 2:4:4.

Before liquidating any assets, the partners determined the amount of cash for safe payments and distributed it. The noncash assets were then sold for $120,000. The liquidation expenses of $5,000 were paid. How would the $120,000 be distributed to the partners? (Hint: Either a predistribution plan or a schedule of safe payments would be appropriate for solving this item.) A. Option A B. Option B C. Option C D. Option D E. Option E 11. The following account balances were available for the Perry, Quincy, and Renquist partnership just before it entered liquidation: Included in Perry's capital balance is a $20,000 partnership loan owed to Perry. Perry, Quincy, and Renquist shared profits and losses in a ratio of 2:4:4. Liquidation expenses were expected to be $15,000. All partners were solvent. What amount would noncash assets need to be sold for in order for any partner to receive some cash? A. $185,000 B. $170,000 C. $165,000 D. $95,000 E. $90,000 12. The following account balances were available for the Perry, Quincy, and Renquist partnership just before it entered liquidation: Included in Perry's capital balance is a $20,000 partnership loan owed to Perry. Perry, Quincy, and Renquist shared profits and losses in a ratio of 2:4:4. Liquidation expenses

were expected to be $15,000. All partners were solvent. What would be the minimum amount for which the noncash assets must have been sold, in order for Quincy to receive some cash from the liquidation? A. any amount in excess of $170,000. B. any amount in excess of $190,000. C. any amount in excess of $260,000. D. any amount in excess of $280,000. E. any amount in excess of $300,000. 13. A local partnership was in the process of liquidating and reported the following capital balances: Douglass indicated that the $14,000 deficit would be covered by a forthcoming contribution. However, the two remaining partners asked to receive the $31,000 that was then in the cash account. How much of this money should Justice receive? A. $15,467. B. $15,533. C. $17,333. D. $16,533. E. $15,867. 14. A local partnership was in the process of liquidating and reported the following capital balances: Douglass indicated that the $14,000 deficit would be covered by a forthcoming contribution. However, the two remaining partners asked to receive the $31,000 that was then in the cash account. How much of this money should Zobart receive? A. $15,467. B. $14,467. C. $17,333. D. $15,633.

E. $15,867. 15. A local partnership was considering the possibility of liquidation since one of the partners (Ding) was personally insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively. Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that time, the partnership held noncash assets reported at $360,000 and liabilities of $120,000. There was no cash on hand at the time. If the assets could be sold for $228,000, what is the minimum amount that Ding's creditors would have received? A. $36,000. B. $0. C. $2,500. D. $38,720. E. $67,250. 16. A local partnership was considering the possibility of liquidation since one of the partners (Ding) was personally insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively. Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that time, the partnership held noncash assets reported at $360,000 and liabilities of $120,000. There was no cash on hand at the time. If the assets could be sold for $228,000, what is the minimum amount that Laurel's creditors would have received? A. $36,000. B. $0. C. $2,500. D. $38,250.

E. $67,250. 17. A local partnership was considering the possibility of liquidation since one of the partners (Ding) was personally insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively. Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that time, the partnership held noncash assets reported at $360,000 and liabilities of $120,000. There was no cash on hand at the time. If the assets could be sold for $228,000, what is the minimum amount that Ezzard's creditors would have received? A. $36,000. B. $0. C. $2,500. D. $38,250. E. $67,250. 18. A local partnership was considering the possibility of liquidation since one of the partners (Ding) was personally insolvent. Capital balances at that time were as follows. Profits and losses were divided on a 4:2:2:2 basis, respectively. Creditors of partner Ding filed a $25,000 claim against the partnership's assets. At that time, the partnership held noncash assets reported at $360,000 and liabilities of $120,000. There was no cash on hand at the time. If the assets could be sold, for $228,000 what is the minimum amount that Tillman's creditors would have received? A. $36,000. B. $0. C. $2,500.

D. $38,250. E. $67,250. 19. Dancey, Reese, Newman, and Jahn were partners who shared profits and losses on a 4:2:2:2 basis, respectively. They were beginning to liquidate their business. At the start of the process, capital balances were as follows: Which one of the following statements is true for a predistribution plan? A. The first available $16,000 would go to Newman. B. The first available $20,000 would go to Dancey. C. The first available $8,000 would go to Jahn. D. The first available $8,000 would go to Newman. E. The first available $4,000 would go to Jahn. 20. Dancey, Reese, Newman, and Jahn were partners who shared profits and losses on a 4:2:2:2 basis, respectively. They were beginning to liquidate their business. At the start of the process, capital balances were as follows: Which one of the following statements is true for a predistribution plan? A. The first available $16,000 would go to Newman. The next $12,000 would go $8,000 to Dancey and $4,000 to Newman. The following $32,000 would be shared by Dancey, Reese, and Newman. The total distribution would be $60,000 before all four partners share any further payments equally. B. The first available $16,000 would go to Newman. The next $12,000 would go $8,000 to Dancey and $4,000 to Newman. The following $32,000 would be shared by Dancey, Reese, and Newman. The total distribution would be $60,000 before all four partners share any further payments in their profit and loss sharing ratios. C. The first $20,000 would go to Newman. The next $8,000 would go to Dancey. The next $12,000 would be shared by

Dancey, Reese, and Newman. The total distribution would be $40,000 before all four partners share any further payments equally. D. The first available $8,000 would go to Newman. The next $4,000 would be split equally between Dancey and Newman. The following $12,000 would be shared by Dancey, Reese, and Newman. The total distribution would be $24,000 before all four partners share any further payments equally. E. The first available $8,000 would go to Newman. The next $4,000 would be split equally between Dancey and Newman. The following $12,000 would be shared by Dancey, Reese, and Newman. The total distribution would be $24,000 before all four partners share any further payments in their profit and loss sharing ratios. 21. Which of the following could result in the termination and liquidation of a partnership? 1) Partners are incompatible and choose to cease operations. 2) There are excessive losses that are expected to continue. 3) Retirement of a partner. A. 1 only B. 1 and 2 only C. 2 and 3 only D. 3 only E. 1, 2, and 3 22. What accounting transactions are not recorded by an accountant during partnership liquidation? A. The conversion of partnership assets into cash. B. The allocation of gains and losses from sales of assets. C. The payment of liabilities and expenses. D. The initiation of legal action by creditors of the partnership.

E. Write-off of remaining unpaid debts. 23. Which of the following statements is false concerning the partnership Schedule of Liquidation? A. Liquidations may take a considerable length of time to complete. B. Frequent reporting by the accountant is rarely necessary. C. The Schedule of Liquidation provides a listing of transactions to date, current cash, and capital balances. D. The Schedule of Liquidation provides a listing of property still held by the partnership as well as liabilities remaining unpaid. E. The Schedule of Liquidation keeps creditors and partners apprised of the results of the process of dissolution. 24. What is the preferred method of resolving a partner's deficit balance, according to the Uniform Partnership Act? A. Partners never have a deficit balance. B. The other partners must contribute personal assets to cover the deficit balance. C. The partnership must sell assets in order to cover the deficit balance. D. The partner with a deficit balance must contribute personal assets to cover the deficit balance. E. The partner with a deficit balance contributes personal assets only if those personal assets exceed personal liabilities. 25. Which of the following statements is true concerning the distribution of safe payments? A. The distribution of safe payments assumes that any capital deficit balances will prove to be a total loss to the partnership. B. Safe payments are equal to the recorded capital balances of partners with positive capital balances.

C. The distribution of safe payments may only be made after all liabilities have been paid. D. In computing safe payments, partners with positive capital balances are assumed to absorb an equal share of any deficit balance(s). E. There are no safe payments until the liquidation is complete. 26. Which one of the following statements is correct? A. If a partner of a liquidating partnership is unable to pay a capital account deficit, the deficit is absorbed by the other partners in the profit and loss ratio of those partners. B. Gains and losses from the sale of noncash assets are divided in the ratio of the partners' capital account balances if there is no income-sharing plan in the partnership contract. C. A loan receivable from a partner is added to the partner's capital account balance in the preparation of a cash distribution plan. D. Partners may not receive any cash before partnership creditors receive cash when liquidating a partnership. E. All cash payments to partners are made using their profit and loss ratio when liquidating the partnership. 27. Which item is not shown on the schedule of partnership liquidation? A. Current cash balances. B. Property owned by the partnership. C. Liabilities still to be paid. D. Personal assets of the partners. E. Current capital balances of the partners. 28. Harding, Jones, and Sandy is in the process of liquidating and the partners have the following capital balances; $24,000, $24,000, and ($9,000) respectively. The partners share all profits and losses 16%, 48%, and 36%,

respectively. Sandy has indicated that the ($9,000) deficit will be covered with a forthcoming contribution. The remaining partners have requested to immediately receive $20,000 in cash that is available. How should this cash be distributed? A. Harding $5,000; Jones $15,000. B. Harding $17,000; Jones $3,000. C. Harding $11,154; Jones $8,846. D. Harding $14,297; Jones $5,703. E. Harding $12,500; Jones $7,500. 29. Gonda, Herron, and Morse is considering possible liquidation because partner Morse is personally insolvent. The partners have the following capital balances: $60,000, $70,000, and $40,000, respectively, and share profits and losses 30%, 45%, and 25%, respectively. The partnership has $200,000 in noncash assets that can be sold for $150,000. The partnership has $10,000 cash on hand, and $40,000 in liabilities. What is the minimum that partner Morse's creditors would receive if they have filed a claim for $50,000? A. $0. B. $27,500. C. $45,000. D. $47,500. E. $50,000. 30. White, Sands, and Luke has the following capital balances and profit and loss ratios: $60,000 (30%); $100,000 (20%); and $200,000 (50%). The partnership has received a predistribution plan. How would $90,000 be distributed? A. Option A B. Option B C. Option C D. Option D

E. Option E 31. White, Sands, and Luke has the following capital balances and profit and loss ratios: $60,000 (30%); $100,000 (20%); and $200,000 (50%). The partnership has received a predistribution plan. How would $200,000 be distributed? A. Option A B. Option B C. Option C D. Option D E. Option E 32. A local partnership has assets of cash of $5,000 and a building recorded at $80,000. All liabilities have been paid. The partners' capital accounts are as follows Harry $40,000, Landers $30,000 and Waters 15,000. The partners share profits and losses 4:4:2. If the building is sold for $50,000, how much cash will Harry receive in the final settlement? A. $5,000. B. $9,000. C. $18,000. D. $28,000. E. $55,000. 33. A local partnership has assets of cash of $5,000 and a building recorded at $80,000. All liabilities have been paid. The partners' capital accounts are as follows Harry $40,000, Landers $30,000 and Waters 15,000. The partners share profits and losses 4:4:2. If the building is sold for $50,000, how much cash will Waters receive in the final settlement? A. $5,000. B. $9,000.

C. $18,000. D. $28,000. E. $55,000. 34. A local partnership has assets of cash of $130,000 and land recorded at $700,000. All liabilities have been paid and the partners are all personally insolvent. The partners' capital accounts are as follows Roberts, $500,000, Ferry, $300,000 and Mones, $30,000. The partners share profits and losses 5:3:2. If the land is sold for $450,000, how much cash will Roberts receive in the final settlement? A. $0. B. $30,000. C. $217,500. D. $362,500. E. $502,500. 35. A local partnership has assets of cash of $130,000 and land recorded at $700,000. All liabilities have been paid and the partners are all personally insolvent. The partners' capital accounts are as follows Roberts, $500,000, Ferry, $300,000 and Mones, $30,000. The partners share profits and losses 5:3:2. If the land is sold for $450,000, how much cash will Mones receive in the final settlement? A. $0. B. $15,000. C. $300,000. D. $217,500. E. $362,500.

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