Question 1

In 2013, A. Mernick and L. Gold entered into a partnership to develop real estate projects. Each partner contributed $200 000. Due to their respective roles in the business, the partnership agreement specifies a two- phase profit split. The first $90 000 will be split in a ratio of 1:2 to Mernick and Gold, respectively. All profits over $90 000 will be split equally. During 2013, the following transactions took place: Total partnership profit was $110 000. Mernick took withdrawals of $32 000. Gold took withdrawals of $50 000.
At the end of the year, what was the balance in Mernick's capital account?

Accepted Answer

Mernick's share of the first $90,000 profit is $30,000 (1/3 of $90,000). The remaining $20,000 profit is split equally, giving Mernick an additional $10,000. Total profit for Mernick is $40,000. Starting with $200,000, adding $40,000 profit, and subtracting $32,000 withdrawals, Mernick's capital account balance is $208,000.

Question 2

When a new person wishes to be admitted to an existing partnership on an equal profit- sharing basis, the amount the new person must invest to be admitted is not necessarily tied to the total capital of the partnership.

Accepted Answer

The amount the new person must invest to be admitted to an existing partnership on an equal profit-sharing basis is based on the value or worth of the partnership's assets and the terms agreed upon by the existing partners. It is not necessarily tied to the total capital of the partnership.

Question 3

If a new person wishes to be admitted to a partnership with two existing partners, and the existing partners accept, then the new person is automatically entitled to share in one- third the profits of the partnership.

Accepted Answer

The entitlement to share in the profits of a partnership is determined by the partnership agreement. It is not automatic for a new partner to receive one-third of the profits, but rather, it depends on the terms agreed upon by all partners in the partnership agreement.

Question 4

When one person purchases the partnership interest of a partner, the cash is paid directly to the existing partner, not to the partnership.

Accepted Answer

When one person purchases the partnership interest of a partner, the cash is paid directly to the existing partner because the partnership is not a separate legal entity, and each partner owns a portion of the partnership assets and profits.

Question 5

In 2013, A. Mernick and L. Gold entered into a partnership to develop real estate projects. Each partner contributed $200 000. Due to their respective roles in the business, the partnership agreement specifies a two- phase profit split. The first $90 000 will be split in a ratio of 1:2 to Mernick and Gold, respectively. All profits over $90 000 will be split equally. During 2013, the following transactions took place: Total partnership profit was $110 000. Mernick took withdrawals of $32 000. Gold took withdrawals of $50 000.
At the end of the year, what was the balance in Gold's capital account?

Accepted Answer

The answer of In 2013, A. Mernick and L. Gold...

Question 6

When a new partner pays a bonus to join an existing partnership, the bonus amount is the amount in excess of his or her proportionate share of the total capital of the new partnership.

Accepted Answer

The statement is true. A new partner's proportionate share of the total capital of the partnership is determined by the agreed upon distribution of profits and losses. Any amount paid by the new partner above their proportionate share is considered a bonus.

Question 7

When a partner withdraws from the partnership for a settlement that is less than his or her capital balance, the difference between the exiting partner's capital and the settlement amount is added to the capital of the remaining partners.

Accepted Answer

This is known as a bonus to the remaining partners and is based on the assumption that the partner's share of the partnership was worth more than the actual capital balance.

Question 8

When a partner withdraws from the partnership for a settlement that is more than his or her capital balance, the difference between the exiting partner's capital and the settlement amount goes to increase the capital balances of the remaining partners.

Accepted Answer

The answer of When a partner withdraws from the partnership...

Question 9

When a new person is admitted into a partnership by investing assets in the partnership at book value, the new person:

Accepted Answer

When a new person is admitted into a partnership by investing assets at book value, they transfer assets to the partnership equal to the book value of the existing partners' capital balances, without any bonus or adjustment for market value.

Question 10

When one person purchases the partnership interest of a partner, a new partnership agreement will have to be created.

Accepted Answer

When one person purchases the partnership interest of a partner, the partnership agreement needs to be amended or a new agreement needs to be drafted to reflect the changes in ownership and any other terms that may be affected.

Question 11

A new partner may be admitted to a partnership without dissolving the partnership.

Accepted Answer

The answer of A new partner may be admitted to...

Question 12

When a new partner pays a bonus to join an existing partnership, the bonus amount is allocated to the capital accounts of the existing partners.

Accepted Answer

When a new partner pays a bonus to join an existing partnership, the bonus is typically allocated to the existing partners' capital accounts based on their profit-sharing ratios, as it represents compensation for the value of the partnership they have built.

Question 13

Whenever there is a change in the mix of partners, the old partnership is dissolved and a new one begins.

Accepted Answer

This statement is true. Whenever there is a change in the partnership, such as the addition or subtraction of partners, the old partnership is dissolved and a new one is formed. This is necessary to re-allocate profits, liabilities, and other rights among the new partners.

Question 14

On 1 July, Herb Block purchased the partnership interest of James Steinfort for $40 000. The balance in Steinfort's capital account prior to the purchase was $32 000. How will this transaction be reflected on the partnership's books?

Accepted Answer

The answer of On 1 July, Herb Block purchased the...

Question 15

When a new partner pays a bonus to join an existing partnership, the bonus amount is recorded as a gain on the partnership books.

Accepted Answer

When a new partner pays a bonus to join an existing partnership, the bonus amount is actually considered a capital contribution by the new partner and is therefore recorded as an addition to their capital account on the partnership books, not as a gain.

Question 16

If a new person purchases the partnership interest of an existing partner, the new person assumes the same capital balance as the old partner, regardless of whether the amount paid is more or less than the existing partner's capital account balance.

Accepted Answer

The new partner's capital balance is recorded at the existing partner's capital account balance, as the transaction is between the partners and does not affect the partnership's books.

Question 17

When a new person purchases the partnership interest of an existing partner, which of the following is TRUE?

Accepted Answer

When a new person purchases the partnership interest of an existing partner, the new partner assumes the capital balance of the old partner, regardless of the amount paid. The transaction is between the buyer and the seller, and does not affect the partnership's books directly.

Question 18

When a new person wishes to be admitted into an existing partnership that consists of two partners and wishes to obtain an equal share (1/3 share)of the new partnership, the amount that the new person must invest is required to be the average of the capital balances of the existing partners.

Accepted Answer

The answer of When a new person wishes to be...

Question 19

When a new person wishes to join an existing partnership, the difference between what the new partner contributes and the value the new partner receives in capital is either a bonus to the existing partners or a bonus to the new partner.

Accepted Answer

The answer of When a new person wishes to join...

Question 20

If a new person purchases the partnership interest of an existing partner, and the amount paid is more or less than the existing partner's capital account balance, the partnership must record either a gain or a loss for the difference.

Accepted Answer

The purchase of a partnership interest is a transaction between the buyer and the selling partner, not the partnership itself, so no gain or loss is recorded by the partnership.

Quiz 13: Partnerships