Question 1

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 amount a new partner must invest to obtain an equal share in a partnership is typically negotiated and may not necessarily be the average of the existing partners' capital balances. It depends on the agreed-upon valuation of the partnership and the terms set by the existing partners.

Question 2

Ruby and Anita are partners.Ruby has a capital balance of $230,000 and Anita has a capital balance of $200,000.Denis invests in a building with a current market value of $150,000 to acquire an interest in the new partnership.Which of the following is true of the journal entry to record this transaction? (Assume no bonus to any partner. )

Accepted Answer

The journal entry to record Denis' investment in the partnership is to debit the asset (building) for its market value of $150,000 and to credit Denis, capital for the same amount. This does not affect the capital balances of Ruby or Anita, so they are not involved in the journal entry. Therefore, option A is the correct answer.

Question 3

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 4

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

When a new partner joins a partnership, the difference between their contribution and the capital they receive is adjusted as a bonus to either the existing partners or the new partner, depending on whether the contribution is more or less than the capital share received.

Question 5

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. When there is a change in the mix of partners, the old partnership is dissolved and a new one begins. This is because partnerships are based on the agreement and understanding between specific individuals or entities, and any change to that group can alter the terms and dynamics of the partnership. Therefore, it is customary for partners to dissolve their previous agreement and create a new one when there is a change to the partnership structure.

Question 6

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 7

Shaun and Rick are partners.Shaun has a capital balance of $9000 and Rick has a capital balance of $7000.Edwin invests a building with a current market value of $5000 to acquire an interest in the new partnership.Which of the following is true of the effect of the transaction on the balance sheet? (Assume no bonus to any partner. )

Accepted Answer

When Edwin invests the building with a current market value of $5000, it will increase the assets of the partnership by $5000. Edwin did not assume any liabilities or borrowings. Thus, there will be no increase in liabilities due to the investment. As Edwin is acquiring an interest in the partnership, the equity of the partnership will increase by $5000, which will be distributed among the partners according to their profit/loss sharing ratio. Therefore, both assets and equity will increase by $5000.

Question 8

Keith and Jim are partners.Keith has a capital balance of $50,000 and Jim has a capital balance of $38,000.Bill invested a building worth $30,000 to the partnership for an ownership interest of 20%.How much is the total bonus for the existing partners?

Accepted Answer

The total capital of the partnership before Bill's investment is $88,000 ($50,000 + $38,000). After Bill's investment, the total capital is now $118,000 ($88,000 + $30,000). Bill's 20% ownership interest represents $23,600 ($118,000 x 20%). The bonus for the existing partners is the excess of Bill's investment over his ownership interest, which is $6,400 ($30,000 - $23,600). Therefore, the answer is B.

Question 9

Floyd and Merriam start a partnership business on 12 June 2019.Their capital account balances as of 31 December 2020 stood as follows: $$\begin{array} { | l | l | } 
\hline \text { Floyd } & \$ 52,000 \
\hline \text { Merriam } & 15,000 \
\hline
\end{array}$$ They agreed to admit Ramelow into the business for a one-fifth interest in the new partnership.He had to bring in a cash contribution of $29,000 for the same.Assuming that Floyd and Merriam shared profits and losses in the ratio 3:1 before the admission of Ramelow,which of the following is the correct journal entry to record the above admission?

Accepted Answer

Ramelow's contribution of $29,000 for a one-fifth interest implies the total capital of the new partnership is $145,000. The existing capital is $67,000 ($52,000 + $15,000), so the excess $19,200 ($145,000 - $125,800) is a bonus to Floyd and Merriam in their profit-sharing ratio (3:1), which is $14,400 to Floyd and $4,800 to Merriam.

Question 10

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 may be determined by a variety of factors, such as the assets and liabilities of the partnership, the projected earnings of the partnership, and the negotiation between the existing partners and the new person. Therefore, it is not necessarily tied to the total capital of the partnership.

Question 11

Sarah and Jane formed a partnership with capital of $200,000 and $126,000,respectively.Peter contributed $85,000 to acquire an ownership interest of 12% in the new partnership.How much is the total bonus for the existing partners?

Accepted Answer

The total capital after Peter's contribution is $411,000 ($200,000 + $126,000 + $85,000). Peter's 12% interest should be $49,320 (12% of $411,000). Since Peter contributed $85,000, the bonus to existing partners is $85,000 - $49,320 = $35,680.

Question 12

Allan and Ralph are partners.Allan has a capital balance of $89,000 and Ralph has a capital balance of $73,000.Carol invested $61,000 to acquire an ownership interest of $50,000.Which of the following is true of the impact of the transaction on the balance sheet?

Accepted Answer

The transaction increases the assets of the partnership by $61,000 (the amount of Carol's investment) and increases the equity of the partnership by $50,000 (the amount of Carol's ownership interest).

Question 13

Anna and Naomi are partners.Anna has a capital balance of $49,000 and Naomi has a capital balance of $43,000.Gary invested $27,000 to acquire an ownership interest of $23,000.Which of the following is true of the partnership journal entry to record the receipt of Gary's contribution? (Assume the existing partners equally divide the bonus. )

Accepted Answer

When a new partner is admitted to the partnership, the existing partners divide the bonus or goodwill among themselves in their profit and loss sharing ratio. In this case, Gary's ownership interest is $23,000 ($27,000 - $4,000 bonus to the existing partners). Therefore, to record the receipt of Gary's contribution, we will debit Cash for $27,000 (the actual amount received) and credit Gary, Capital for $23,000 (his ownership interest).

Question 14

Rex and Sandy are partners.Rex has a capital balance of $380,000 and Sandy has a capital balance of $250,000.Marcus invests a building worth $200,000 to acquire interest in the new partnership.How much will be the partnership share of Marcus after he makes the investment? (Assume no bonus to any partner. )

Accepted Answer

The total capital of the partnership after Marcus' investment will be:

$380,000 + $250,000 + $200,000 = $830,000

Marcus' share will be:

$200,000 / $830,000 = 0.24096385542

Therefore, Marcus' share in the partnership will be approximately 24.1%.

Question 15

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

Accepted Answer

Whenever a change occurs in the partnership structure, such as one partner purchasing the interest of another partner, a new partnership agreement should be drafted to reflect the new ownership and responsibilities of the partners.

Question 16

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, not to the partnership.

Question 17

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 distribution of profits in a partnership and the percentage of the new partner's share must be agreed upon and documented in the partnership agreement. It is not automatically one-third.

Question 18

Floyd and Merriam start a partnership business on 12 June 2019.Their capital account balances as of 31 December 2020 stood as follows: $$\begin{array} { | l | l | } 
\hline \text { Floyd } & \$ 47,000 \
\hline \text { Merriam } & 17,000 \
\hline
\end{array}$$ They agreed to admit Ramelow into the business for a one-third interest in the new partnership.He had to bring in a cash contribution of $24,000 for the same.Which of the following is the correct capital account balance of Ramelow after he enters the business?

Accepted Answer

Ramelow's one-third interest means the total capital of the new partnership should be three times his contribution. The total capital after his entry is $47,000 + $17,000 + $24,000 = $88,000. One-third of $88,000 is $29,333, which should be Ramelow's capital account balance.

Question 19

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 bonus paid by the new partner is typically in excess of their proportionate share of the total capital of the partnership, as it is intended as an incentive for the existing partners to admit them into the partnership. Therefore, the statement is true.

Question 20

Keith and Jim are partners.Keith has a capital balance of $51,000 and Jim has a capital balance of $37,000.Bill invested $27,000 to acquire an ownership interest of 30%.Which of the following statements is true of this transaction?

Accepted Answer

Bill received a bonus of $7500. The total capital of the partnership after Bill's investment is $51,000 + $37,000 + $27,000 = $115,000. Bill's ownership interest is 30%, so his capital balance should be $115,000 x 30% = $34,500. However, he invested $27,000, so he received a bonus of $34,500 - $27,000 = $7,500.

Quiz 13: Partnerships