Question 1

When recording a bonus to a new partner,the new partner will:

Accepted Answer

When recording a bonus to a new partner, the bonus will be recorded as a credit to the existing partners' capital accounts. The new partner's capital account will then be credited with their share of the bonus, which will result in a credit balance in their capital account. This means that the new partner will receive more in their capital account than what they are required to pay to become a partner, resulting in them paying less than they will receive in the capital account. Therefore, the correct answer is C.

Question 2

A statement of partner's equity is the same as a statement of owner's equity except for:

Accepted Answer

In a statement of partner's equity, there is a capital account for all partners, whereas in a statement of owner's equity, there is only one capital account for the single owner.

Question 3

Partnerships are subject to federal income tax.

Accepted Answer

Partnerships are not subject to federal income tax, but instead, their profits and losses are "passed through" to the individual partners who are then responsible for paying tax on their share of the partnership's income.

Question 4

Janie and Larry are partners,with beginning capital balances of $60,000 and $40,000 respectively.During the year,Janie withdrew $10,000 and Larry withdrew $15,000.The year's net income of $30,000 was distributed $10,000 to Janie and $20,000 to Larry.Prepare a statement of Partners' equity.

Accepted Answer

The answer of Janie and Larry are partners,with beginning capital...

Question 5

Mary sold Jill her equity in the Mary and Jill partnership for $13,000.If both Mary and Jill had a $10,000 capital balance,the entry to record this transaction would be to:

Accepted Answer

Mary's capital account is debited and Jill's capital account is credited for the amount of Mary's capital balance, which is $10,000. The transaction is between Mary and Jill, and the partnership's books reflect the transfer of equity, not the cash transaction.

Question 6

A cash withdrawal of a partner was recorded the same as paying payroll.This error would cause:

Accepted Answer

The answer of A cash withdrawal of a partner was...

Question 7

When a partnership is worth more than the amounts recorded,an incoming partner may:

Accepted Answer

If the partnership is worth more than the amounts recorded, the existing partners may require the incoming partner to pay a bonus to compensate for the additional value of the partnership. This is known as a goodwill bonus and ensures that the incoming partner is paying their fair share for the partnership. Alternatively, the existing partners may choose to distribute the additional value of the partnership among themselves, but this would not be fair to the incoming partner who is contributing to the partnership's overall value. Therefore, option A is the best choice.

Question 8

A bonus paid by an incoming partner to the old partners is shared:

Accepted Answer

The answer of A bonus paid by an incoming partner...

Question 9

Partners Brian,Josh,and Chad have average capital balances of $7,000,$3,000,and $90,000,respectively.Net income for the year is $12,000.Salary allowances are $14,000 for Brian and $5,000 for Josh.Chad gets 10% interest on his capital balance with the remainder being divided at a 1:1:2 ratio.What is Brian's capital balance after distributing the net income?

Accepted Answer

First, calculate the interest for Chad: 10% of $90,000 = $9,000. The total salary allowances are $14,000 (Brian) + $5,000 (Josh) = $19,000. So, the total allocations before the profit split are $9,000 (interest) + $19,000 (salaries) = $28,000. The net income is $12,000, so after the interest and salaries, there's a deficit of $28,000 - $12,000 = $16,000. This deficit is divided among the partners in a 1:1:2 ratio, meaning Brian and Josh each take on 1/4 of the deficit, and Chad takes on 1/2. Brian's share of the deficit is $16,000 * 1/4 = $4,000. Since Brian's initial capital balance is $7,000 and he receives a salary of $14,000, his final balance is $7,000 + $14,000 - $4,000 = $17,000 credit balance.

Question 10

A bonus is paid to the old partners when:

Accepted Answer

A bonus is paid to the old partners when the equity of a partnership is worth more than what is recorded in the accounting records. This typically occurs when the business has experienced significant growth or increased profitability since the original partnership agreement was formed. The bonus represents a distribution of this additional value to the old partners, in proportion to their ownership interest in the partnership. Choices A and C do not accurately describe the circumstances under which a bonus would be paid to old partners, and choice D is incorrect because there is a correct answer.

Question 11

When a partner withdraws from a partnership,the company can:

Accepted Answer

When a partner withdraws from a partnership, the process involves settling the withdrawing partner's account based on the partnership agreement, which may include revaluing assets to their current fair market value, not historical value, and distributing any profits or losses accordingly. The options provided do not accurately describe standard procedures for handling a partner's withdrawal.

Question 12

Janie and Larry are partners,with beginning capital balances of $60,000 and $40,000 respectively.During the year,Janie withdrew $10,000 and Larry withdrew $15,000.The year's net income of $30,000 was distributed $10,000 to Janie and $20,000 to Larry.Calculate the ending balances in the capital accounts.

Accepted Answer

Janie's ending capital balance is $60,000 + $10,000 (net income) - $10,000 (withdrawals) = $60,000. Larry's ending capital balance is $40,000 + $20,000 (net income) - $15,000 (withdrawals) = $45,000.

Question 13

Katie withdrew from the partnership of Katie,Courtney,and Nathan,and accepted $15,000 cash.Her capital balance was $18,000 and the difference will be shared in a ratio of 2:1.The entry would be to:

Accepted Answer

The withdrawal of Katie's capital balance of $18,000 is recognized by debiting Katie,Capital for $18,000 and crediting Cash for $15,000. The remaining $3,000 of Katie's capital balance will be distributed between Courtney and Nathan in a 2:1 ratio. This means Courtney will receive $2,000 and Nathan will receive $1,000. These amounts are credited to their respective capital accounts. Therefore, the entry should be to debit Katie,Capital $18,000; credit Cash $15,000; credit Courtney,Capital $2,000; credit Nathan,Capital $1,000.

Question 14

A partnership admits a new partner.The new partner invests $50,000 in the business and receives a credit of $60,000 to his capital account.The difference of $10,000 is called a(n):

Accepted Answer

The difference of $10,000 is called a bonus, which is a reward given to the new partner for joining the partnership. It is a common practice in partnerships to offer bonuses to new partners as an incentive for making a significant investment in the business.

Question 15

An investment by a new partner was credited to existing partners' capital balances.This error would cause:

Accepted Answer

When an investment by a new partner is incorrectly credited to existing partners' capital balances, it means the new partner's contribution is not properly recorded in their own capital account. This leads to the new partner's capital account being understated because their investment increases the total capital but is not reflected in their individual account.

Question 16

When a partner withdraws,the partnership may have an audit to adjust the assets to their:

Accepted Answer

When a partner withdraws, the partnership may have an audit to adjust the assets to their fair market value. This is because fair market value represents the current market value of an asset and provides a more accurate picture of the value of the assets that will be divided among the partners. Historic cost represents the cost at which the assets were initially purchased, which may not reflect their current value. Depreciated value represents the reduction in value over time due to wear and tear, which may not reflect their current market value. Book value represents the value of the assets as recorded in the partnership's books, which may not reflect their fair market value. Therefore, fair market value is the best choice when adjusting the assets upon a partner's withdrawal.

Question 17

The Brad and Marcia partnership agree to admit Fred with a one-third interest for $5,000.Brad and Marcia's capital balances are $3,000,and $7,000,respectively,and they share profits and losses equally.The entry to admit Brad would include:

Accepted Answer

Fred's admission into the partnership with a $5,000 investment for a one-third interest is simply recorded by increasing the cash account for the partnership by $5,000 and crediting Fred's capital account by the same amount, reflecting his investment into the partnership.

Question 18

Partners Jessica and Jill receive salary allowances of $5,000 and $10,000,respectively.They share income and losses in a 3:1 ratio.If the partnership suffers a $21,000 loss,by how much would Jessica's capital decrease?

Accepted Answer

The answer of Partners Jessica and Jill receive salary allowances...

Question 19

James wants to invest cash so that he will have a one-third interest in Thomas and Stanley's company.The capital balances are $2,000 Thomas,$6,000 Stanley.The admission of James would be to:

Accepted Answer

The answer of James wants to invest cash so that...

Question 20

The statement of partners' equity reflects the equity of each partner and summarizes the allocation of net income for the year.

Accepted Answer

The statement of partners' equity shows the changes in each partner's equity throughout the year, including the allocation of net income. By doing so, it summarizes how net income is distributed among the partners.

Quiz 17: Partnership