Question 1

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

Accepted Answer

When one partner purchases the partnership interest of another partner, a new partnership agreement will have to be created to reflect the change in ownership and the rights and obligations of the remaining partners.

Question 2

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 answer of Allan and Ralph are partners.Allan has a...

Question 3

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 is typically based on the agreed-upon valuation of the partnership and the percentage of ownership they will be receiving. It may not necessarily be tied to the total capital of the partnership.

Question 4

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

The bonus amount paid by a new partner to join an existing partnership is not recorded as a gain. It is added to the capital account of the existing partners in proportion to their ownership percentage. The reason being is that the bonus is considered to be an investment made by the new partner in the partnership.

Question 5

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 6

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 7

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

This is true. When a new partner joins an existing partnership, they typically contribute a proportionate amount of capital to the partnership based on their ownership percentage. However, if they pay an additional amount to join that is above and beyond their proportionate share, that amount is considered a bonus.

Question 8

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 building will be to debit the Building account for its current market value of $150,000 and to credit Denis, capital for the same amount. This transaction has no impact on the capital balances of Ruby and Anita, therefore they should not be involved in the journal entry.

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

In the given question, Ramelow is being admitted into the partnership business. In return for a one-fifth (1/5) interest, he brings in $29,000.
The first step in solving the question is to calculate the new profit-sharing ratio. Before the admission of Ramelow, Floyd and Merriam shared profits and losses in the ratio 3:1. After the admission of Ramelow, the new profit-sharing ratio will become (3/5):(1/5):(1/5), as Ramelow is being given a one-fifth (1/5) interest in the partnership.
The journal entry to record the admission of Ramelow will involve debiting the cash account, as he is bringing in cash as capital, and crediting his capital account with the amount of cash contributed. The capital accounts of Floyd and Merriam will also need to be adjusted to reflect the new profit-sharing ratio. Therefore, their capital accounts will be debited and credited accordingly. The journal entry will be as follows:

Cash account     Dr.     $29,000
To Ramelow's capital account    $29,000
(To record cash contribution by Ramelow on admission)

Floyd's capital account    Dr.     $18,000
Merriam's capital account    Dr.     $6,000
To Ramelow's capital account    Cr.     $24,000
(To adjust capital accounts to reflect new profit-sharing ratio)

Therefore, the correct journal entry to record the admission of Ramelow is option C.

Question 10

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 balance of the partnership before the investment is $630,000 ($380,000 + $250,000). After Marcus invests the $200,000 building, the total capital balance becomes $830,000 ($630,000 + $200,000). 
Thus, Marcus' share of the partnership can be calculated as follows:

Marcus' Share = (Marcus' investment / Total capital balance) x 100%
= ($200,000 / $830,000) x 100%
= 24.1%

Therefore, the answer is B) 24.1%.

Question 11

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

Since Bill is receiving a 20% ownership interest in the partnership, the existing partners need to split the remaining 80% ownership interest. Keith has a capital balance of $50,000, which is 62.5% of the current total capital balance ($50,000 ÷ $80,000). Jim has a capital balance of $38,000, which is 47.5% of the current total capital balance ($38,000 ÷ $80,000). To make the ownership interests equal, Keith needs to give up 15% of his ownership (62.5% - 47.5%), which is worth $12,000 ($80,000 x 15%). Jim needs to give up 33.33% of his ownership (47.5% ÷ 142.5%), which is worth $25,200 ($80,000 x 33.33%). The total bonus for the existing partners is the sum of the amount Keith and Jim are giving up, which is $12,000 + $25,200 = $37,200. However, the question is asking for the total bonus for the existing partners, not the total amount Keith and Jim are giving up. Since the total amount Bill invested is $30,000 and that is the only new investment, the bonus for the existing partners is equal to the amount Bill invested, which is $30,000. Therefore, the best choice is B.

Question 12

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

The answer of Keith and Jim are partners.Keith has a...

Question 13

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 14

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 answer of Sarah and Jane formed a partnership with...

Question 15

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

The building brought in by Edwin increases the total assets of the partnership by $5000. As Edwin is joining the partnership, the equity of Shaun and Rick will decrease by $9000 and $7000 respectively, but the equity of Edwin increases by $5000. So, the total equity also increases by $5000, resulting in both assets and equity increasing by $5000. There is no change in the liabilities of the partnership due to this transaction.

Question 16

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

After admitting Ramelow into the business, the new capital balance should be calculated as follows:

Floyd: $90,000
Merriam: $75,000
Ramelow: ($24,000 cash contribution + 1/3 interest) = $48,000

Total capital after admitting Ramelow: $213,000

Therefore, the correct capital account balance of Ramelow after he enters the business is $29,333 (1/3 of $213,000). Thus, the answer is D.

Question 17

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 joins a partnership, their contribution is recorded in the books of accounts through a journal entry. In this case, Gary invested $27,000 to acquire an ownership interest of $23,000. This means that the bonus or goodwill of $4,000 ($23,000 - $27,000) will be equally divided among the existing partners, Anna and Naomi.

The journal entry to record the receipt of Gary's contribution will be as follows:

Cash (Dr.) $27,000
Gary, capital (Cr.) $23,000
Anna, capital (Cr.) $2,000 ($4,000/2)
Naomi, capital (Cr.) $2,000 ($4,000/2)

Option D correctly reflects this journal entry. Hence, the answer is D.

Question 18

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 terms of the new person's entitlement to profit sharing can be agreed upon and documented in a partnership agreement, and may not necessarily be one-third.

Question 19

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 and not to the partnership.

Question 20

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. A change in the mix of partners means that the partnership is no longer the same as before, hence the old partnership is dissolved and a new one with the new mix of partners begins.

Quiz 13: Partnerships