Question 1

Partnerships always share profit equally among all partners.

Accepted Answer

Profit sharing among partners in a partnership can be agreed upon through a partnership agreement. It can vary based on the contribution of each partner, the amount of capital invested, or other factors. Profit sharing is not always equal among partners.

Question 2

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

Accepted Answer

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

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

This is known as the default rule for profit and loss distribution in the absence of any specific agreement mentioned in the partnership agreement.

Question 4

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

Accepted Answer

When a new person pays a bonus to buy into a partnership, it means that the new partner is paying a greater amount into the partnership than his or her proportionate share of the total capital. This usually happens when the existing partners feel that the new partner brings significant value to the partnership and is willing to pay a premium to join.

Question 5

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:

Accepted Answer

The answer of Adam,Bill and Charlie are partners.The profit and...

Question 6

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 partnership...

Question 7

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?

Accepted Answer

When Bill is admitted, he is purchasing $11,000 worth of Jim's ownership, not $21,000. Therefore, Bill's capital account should be credited for $11,000 to reflect his investment in the partnership. Jim's capital account is not directly affected by the admission of Bill, so there is no need to debit or credit it for the full $21,000.

Question 8

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?

Accepted Answer

The profit is allocated based on the capital contributions ratio: Farrell's share is $70,000/$220,000 = 31.82% and Jimmy's share is $150,000/$220,000 = 68.18%. Therefore, Farrell's share of the profit is $80,000 * 31.82% = $25,455 and Jimmy's share is $80,000 * 68.18% = $54,545. The correct journal entry is to debit Income Summary and credit each partner's capital account with their respective share of the profit.

Question 9

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.)

Accepted Answer

The answer of David,Chris and John started off a partnership...

Question 10

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?

Accepted Answer

The answer of Dominic and Morgan are partners.Dominic has a...

Question 11

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:

Accepted Answer

The answer of Alex,Brad and Carl are partners.The profit and...

Question 12

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 in the partnership at book value, the new person transfers assets to the partnership which are equal in value to the existing partners' capital balances (no bonus). This maintains the proportional ownership percentage of each partner and does not result in any bonus paid to the existing partners. Therefore, option B is the correct choice.

Question 13

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?

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 14

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:

Accepted Answer

The answer of Keith and Jim formed a partnership business.The...

Question 15

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.

Accepted Answer

(a) Nancy's salary = $1400
Betty's salary = $11,500

Therefore, total salary = $1400 + $11,500 = $12,900

(b) Next allocation = 10% of partner's capital balance

Nancy's capital balance = $88,000
10% of Nancy's capital balance = 10% of $88,000 = $8,800

Betty's capital balance = $12,000
10% of Betty's capital balance = 10% of $12,000 = $1,200

Therefore, total allocation = $8,800 + $1,200 = $10,000

(c) Profit remaining after salaries and next allocation = $40,000 - $12,900 - $10,000 = $17,100

As per the partnership agreement, any remaining profit or loss is to be borne completely by Betty. So Betty's share of profit/loss = $17,100.

Therefore, Betty needs to bear a share of profit worth $29,800 ($17,100 + $12,700 (her salary and capital allocation)). Hence, the answer is C.

Question 16

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:

Accepted Answer

Since the partnership incurred a net loss of $76,000, this amount needs to be debited to the Income summary account. According to the profit sharing ratio, Adam's share of the loss would be 2/10 or 1/5 of $76,000, which is $15,200. Therefore, Adam's capital account would be debited for $15,200. Charlie's capital account would be credited for the same amount since their profit and loss sharing ratio is same. Bill's capital account remains unaffected in this situation.

Question 17

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.

Accepted Answer

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

Question 18

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?

Accepted Answer

The answer of Kenny and Jeff formed a partnership business.During...

Question 19

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?

Accepted Answer

The correct journal entry records the transfer of half of Floyd's capital to Ramelow. Floyd's capital is reduced by $23,500 (half of $47,000), and Ramelow's capital is increased by the same amount. The cash transaction between Floyd and Ramelow is personal and does not affect the firm's books.

Question 20

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 and the accounts are closed, the partner capital accounts will be credited with their designated shares of the profit. This is the standard accounting treatment for distribution of partnership profits among partners.

Quiz 13: Partnerships