Question 1

Nancy and Betty enter into a partnership agreement whereby they undertake to share profits according to the following rules: (a)Nancy and Betty will receive a salary of $1400 and $11,500 respectively.
(b)The next allocation is based on 10% of the partner's capital balances.
(c)Any remaining profit or loss is to be borne completely by Betty.
The partnership's profit for the first year is $40,000.Nancy's capital balance is $88,000 and Betty's capital balance is $12,000 as at the end of the year.Calculate the share of profit/loss to be borne by Betty.
A)$1000
B)$10,200
C)$29,800
D)$9000

Accepted Answer

Nancy and Betty's total salaries amount to $15,900 ($1400 + $11,500), which is deducted from the total profit of $40,000. This leaves $24,100 to be allocated between the partners.

Next, 10% of Nancy's capital balance is $8,800 ($88,000 x 10%), and 10% of Betty's capital balance is $1,200 ($12,000 x 10%). The total amount to be allocated based on capital balances is $10,000 ($8,800 + $1,200). This $10,000 is then added to the partners' salaries, giving a total allocation of $25,900 ($15,900 + $10,000).

Therefore, the remaining profit to be borne completely by Betty is $14,100 ($40,000 - $25,900). This was the amount leftover after the salaries and capital balances were allocated. Therefore, Betty's share of profit/loss to be borne completely by her is $14,100.

Question 2

Adam,Bill and Charlie are partners.The profit and rule sharing rule between them is 2:6:2,with Bill getting the most and Adam getting the least.The partnership incurs a net loss of $76,000.While closing the Income summary:
A)Adam,capital will be credited for $45,600.
B)Income summary will be debited for $76,000.
C)Charlie,capital will be credited for $45,600.
D)Adam,capital will be debited for $15,200.

Accepted Answer

Since the partnership incurred a net loss, the Income Summary account is debited for the entire amount of the loss, which is $76,000. To close this account, it needs to be credited to bring its balance to zero. According to the profit and rule sharing agreement, Adam is responsible for 2/10 of the loss, which is $15,200 ($76,000 x 2/10). Therefore, Adam's Capital account should be debited for $15,200 to close the Income Summary account. Charlie's Capital account should be credited for the same amount, and Bill's Capital account should be credited for $45,600 ($76,000 x 6/10) to balance the total debits and credits.

Question 3

If the partnership agreement does NOT specifically state how profits and losses are to be distributed,then the partners will share profits and losses equally.

Accepted Answer

According to the default rules of partnership law, if the partnership agreement is silent on how profits and losses are to be distributed, they will be shared equally among the partners.

Question 4

Alex,Brad and Carl are partners.The profit and rule sharing rule between them is 5:2:2 in the alphabetical order.The partnership incurs a net loss of $100,000.Before preparing the closing journal entry the:
A)Alex,capital account will have a credit balance of $55,556.
B)Alex,capital account will have a debit balance of $55,556.
C)Income summary account will have a debit balance of $100,000.
D)Carl,capital account will have a debit balance of $22,222.

Accepted Answer

The income summary account will have a debit balance of $100,000 because it reflects the net loss incurred by the partnership before closing entries are made.

Question 5

Nancy and Betty enter into a partnership agreement whereby they undertake to share profits according to the following rules: (a)Nancy and Betty will receive a salary of $9500 and $23,500 respectively.
(b)The next allocation is based on 30% of the partner's capital balances.
(c)Any remaining profit or loss is to be borne completely by Betty.
The partnership's net loss for the first year is $30,000.Nancy's capital balance is $109,000 and Betty's capital balance is $10,000 as at the end of the year.Calculate the share of profit (loss)to be borne by Nancy.
A)$42,200
B)$9500
C)$(12,200)
D)$(32,700)

Accepted Answer

The answer of Nancy and Betty enter into a partnership...

Question 6

Which of the following statements describes the situation in which a new person pays a bonus to buy into a partnership?
A)The new person pays a greater amount into the partnership than his or her proportionate share of the total capital.
B)The new partner pays in to the partnership an amount that is less than his or her proportionate share of the total capital.
C)The new person pays certain amounts directly to the existing partners in addition to his or her payment to the partnership.
D)The new partner pays in an amount equal to the average capital balances of the existing partners.

Accepted Answer

When a new person pays a bonus to buy into a partnership, they pay a greater amount into the partnership than their proportionate share of the total capital. This is because the existing partners are compensated for the goodwill of the partnership, which is represented by the bonus payment.

Question 7

Farrell and Jimmy enter into a partnership agreement on 1 May 2017.Farrell contributes $70,000 and Jimmy contributes $150,000 as their capital contributions.They decide to share profits and losses in the ratio of their respective capital account balances.The net profit for the year ended 31 December 2017 is $80,000.Which of the following is the correct journal entry to record the allocation of profit?
A) $$\begin{array} { | l | l | l | } 
\hline \text { Farrell, capital } & 25,455 & \
\hline \text { jimmy, captial } & 54,545 & \
\hline \text { Income summary } & & 80,000 \
\hline
\end{array}$$
B) $$\begin{array} { | c | c | c | } 
\hline \text { Farrell, captial } & 54,545 & \
\hline \text { Jimmy, capital } & & 54,545 \
\hline
\end{array}$$
C) $$\begin{array} { | c | l | l | } 
\hline \text { Income summary } & 30,000 & \
\hline \text { Farrell, capital } & & 25,455 \
\hline \text { Jimmy, captial } & & 54,545 \
\hline
\end{array}$$
D) $$\begin{array} { | c | c | c | } 
\hline \text { Income summary } & 29,090 & \
\hline \text { Farrell, capital } & 25,455 & \
\hline \text { Jimmy, capital } & & 54,545 \
\hline
\end{array}$$

Accepted Answer

The answer of Farrell and Jimmy enter into a partnership...

Question 8

When a new person purchases the partnership interest of an existing partner,which of the following is TRUE?
A)The newly admitted partner will assume the same capital balance of the old partner regardless of the amount paid.
B)The partnership will record either a gain or a loss if the amount paid is higher or lower than the existing partner's capital account balance.
C)The amount paid for the partnership interest is recorded on the partnership books.
D)The purchase price is determined by the balance in the existing partner's capital account.

Accepted Answer

The answer of When a new person purchases the partnership...

Question 9

Keith and Jim formed a partnership business.The partnership incurs a net loss of $5000 and the partners agreed to share the losses equally.The entry to close the net loss will:
A)decrease Jim,capital by $5000.
B)decrease Keith,capital by $2500.
C)debit Income summary by $5000.
D)increase Jim,capital by $2500.

Accepted Answer

The net loss of $5000 is shared equally between Keith and Jim, so each partner's capital account will decrease by $2500.

Question 10

Floyd and Merriam start a partnership business on 12 June 2019.Their capital account balances as of 31 December 2020 stood as follows: $$\begin{array} { | l | l | } 
\hline \text { Floyd } & \$ 47,000 \
\hline \text { Merriam } & 16,000 \
\hline
\end{array}$$ Floyd agrees to sell off half of his share to Ramelow in exchange for $26,000 cash.Which of the following is the correct journal entry in the books of the firm for the above transfer of interest?
A) $$\begin{array} { | l l | l | l | } 
\hline \text { Cash. }& & \$ 26,000 & \
\hline  \text { Floyd, captial } && & 2500 \
\hline \text { Ramelow, }\text { Capital } &  & &23,500 \
\hline
\end{array}$$
B) $$\begin{array} { | l | l | l | } 
\hline \text { Cash } & \$ 26,000 & \
\hline \text { Ramelow, apital  } & & 26,000 \
\hline
\end{array}$$
C) $$\begin{array} { | l | l | l | } 
\hline \text { Floyd, captial } & \$ 23,500 & \
\hline \text { Ramelow, } & & \
\text { capital } & & 23,500 \
\hline
\end{array}$$
D) $$\begin{array} { | l | l | l | } 
\hline \text { Cash } & \$ 26,000 & \
\hline \text { Floyd, captial } & 23,500 & \
\hline \text { Ramelow,Capital  } & & 49,500\
\hline
\end{array}$$

Accepted Answer

Floyd's capital account is reduced by half of his share, which is $23,500, and Ramelow's capital account is credited with the same amount. The cash transaction is between Floyd and Ramelow, not the firm.

Question 11

David,Chris and John started off a partnership firm on 31 July 2017.They decided to share profits equally,but also inserted a clause in the partnership agreement whereby any loss suffered would be borne in the ratio 4:4:1.For the year ended 31 December 2017,the firm earned a net profit of $41,000.However,for the year ended 31 December 2018,the firm incurred a loss of $61,000.Assuming that John had an initial capital contribution of $43,000 and made no further withdrawals,what is the balance of John's Capital account as of 31 December 2018? (Assume that none of the partners made any further contributions to their capital accounts. )
A)$56,667
B)$43,000
C)$36,111
D)$49,889

Accepted Answer

John's share of the 2017 profit is $13,667 (1/3 of $41,000). His share of the 2018 loss is $6,778 (1/9 of $61,000). Therefore, his capital account balance is $43,000 + $13,667 - $6,778 = $49,889.

Question 12

Farrell and Jimmy enter into a partnership agreement on 1 May 2017.Farrell contributes $50,000 and Jimmy contributes $160,000 as their capital contributions.They decide to share profits and losses in the ratio of their respective capital account balances.The net profit for the year ended 31 December 2017 is $60,000.Which of the following amounts should be credited to Jimmy's capital account?
A)$45,714
B)$60,000
C)$14,286
D)$50,000

Accepted Answer

The profit sharing ratio is based on the partners' capital account balances, which are $50,000 for Farrell and $160,000 for Jimmy, for a total of $210,000. 
To find Jimmy's share of the $60,000 net profit:

Jimmy's share = Net profit x (Jimmy's capital contribution / Total capital contributions) 
Jimmy's share = $60,000 x ($160,000 / $210,000) 
Jimmy's share = $45,714

Therefore, $45,714 should be credited to Jimmy's capital account.

Question 13

Kenny and Jeff formed a partnership business.During the year,Kenny and Jeff withdrew $25,000 and $18,000,respectively.Which of the following will be included in the journal entry to record the withdrawals?
A)credit to Kenny,drawings for $21,500
B)credit to Jeff,drawings for $18,000
C)debit to Kenny,drawings for $25,000
D)debit to Jeff,drawings for $21,500

Accepted Answer

Withdrawals by partners are recorded as debits to their respective drawings accounts.

Question 14

When a partnership makes profit and the accounts are closed,the partner capital accounts will be credited with their designated shares of the profit.

Accepted Answer

When a partnership makes profit, the partner capital accounts are credited with their designated shares of the profit.

Question 15

Keith and Jim are partners.Keith has a capital balance of $54,000 and Jim has a capital balance of $32,000.Jim sells $11,000 of his ownership to Bill.Which of the following is true of the journal entry to admit Bill?
A)Bill,capital will be debited for $21,000.
B)Bill,capital will be credited for $11,000.
C)Jim,capital will be debited for $21,000.
D)Jim,capital will be credited for $11,000.

Accepted Answer

When Bill buys $11,000 ownership in the partnership, his contribution becomes a part of the partnership capital. As a result, Bill's capital account will be credited for $11,000. Since Jim sold $11,000 of his ownership, his capital balance will decrease by $11,000. Therefore, Jim's capital account will be debited for $11,000. There is no need to debit or credit Keith's capital account as he is not involved in this transaction. The entry will be:
Debit Jim, capital $11,000
Credit Bill, capital $11,000

Question 16

When a new person is admitted into a partnership by investing assets in the partnership at book value,the new person:
A)pays cash directly to existing partners based on the market value of the partnership's assets.
B)transfers assets to the partnership which are equal in value to the existing partners' capital balances (no bonus).
C)pays cash directly to the existing partners in amounts equal to their respective capital balances.
D)transfers assets to the partnership which are equal in value to the market value of the partnership's assets.

Accepted Answer

When a new person is admitted into a partnership by investing assets in the partnership at book value, the new partner transfers assets to the partnership which are equal in value to the existing partners' capital balances (no bonus). This is done to maintain the existing partners' ownership percentage and avoid any potential conflicts or unfair advantages. Option A and C involve a payment based on market value or capital balance, which could lead to unequal ownership stakes. Option D involves the transfer of assets at market value, which could create a bonus for the existing partners and dilute the new partner's ownership stake. Option B is the best choice as it maintains fairness and equality among partners.

Question 17

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?
A)Partnership will debit cash for $8 000 and credit Block's account for $40 000.
B)Partnership will close out Steinfort's capital account for $32 000 and will open up a new capital account for Block in the same amount.
C)No entries will be made by the partnership because the purchase is a personal transaction between the two persons and does not involve the partnership books.
D)Partnership will close out Steinfort's account for $32 000,open Block's account for $40 000 and record a gain of $8 000.

Accepted Answer

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

Question 18

Adam,Bill and Charlie are partners.The profit and rule sharing rule between them is 3:4:4,with Bill getting the most and Adam getting the least.The partnership incurs a net loss of $18,000.While closing the Income summary:
A)Charlie,capital will be debited for $6545.
B)Adam,capital will be debited for $6545.
C)Income summary will be credited for $6545.
D)Adam,capital will be credited for $6545.

Accepted Answer

The loss is shared in the ratio 3:4:4. Charlie's share of the loss is (4/11) * 18000 = $6545.45, so Charlie's capital account will be debited for $6545.

Question 19

Dominic and Morgan are partners.Dominic has a capital balance of $340,000 and Morgan has a capital balance of $225,000.Morgan sells $95,000 of his ownership to Lance.Which of the following is true of the items in balance sheet?
A)The total equity remains unchanged.
B)Assets will decrease by $95,000.
C)The total equity decreases by $95,000.
D)Assets will increase by $95,000.

Accepted Answer

The sale of ownership between partners does not affect the total equity or the assets of the partnership; it only changes the distribution of ownership among the partners.

Question 20

Partnerships always share profit equally among all partners.

Accepted Answer

Partnerships can distribute profits in any way that is agreed upon among the partners. Equal distribution of profits is only one option.

Quiz 13: Partnerships

Adam,Bill and Charlie are partners.The profit and rule sharing rule between them is 2:6:2,with Bill getting the most and Adam getting the least.The partnership incurs a net loss of $76,000.While closing the Income summary:

If the partnership agreement does NOT specifically state how profits and losses are to be distributed,then the partners will share profits and losses equally.

Alex,Brad and Carl are partners.The profit and rule sharing rule between them is 5:2:2 in the alphabetical order.The partnership incurs a net loss of $100,000.Before preparing the closing journal entry the:

Which of the following statements describes the situation in which a new person pays a bonus to buy into a partnership?

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

Keith and Jim formed a partnership business.The partnership incurs a net loss of $5000 and the partners agreed to share the losses equally.The entry to close the net loss will:

Kenny and Jeff formed a partnership business.During the year,Kenny and Jeff withdrew $25,000 and $18,000,respectively.Which of the following will be included in the journal entry to record the withdrawals?

When a partnership makes profit and the accounts are closed,the partner capital accounts will be credited with their designated shares of the profit.

Keith and Jim are partners.Keith has a capital balance of $54,000 and Jim has a capital balance of $32,000.Jim sells $11,000 of his ownership to Bill.Which of the following is true of the journal entry to admit Bill?

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

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?

Adam,Bill and Charlie are partners.The profit and rule sharing rule between them is 3:4:4,with Bill getting the most and Adam getting the least.The partnership incurs a net loss of $18,000.While closing the Income summary:

Dominic and Morgan are partners.Dominic has a capital balance of $340,000 and Morgan has a capital balance of $225,000.Morgan sells $95,000 of his ownership to Lance.Which of the following is true of the items in balance sheet?

Partnerships always share profit equally among all partners.