Question 1

Keith and Jim are partners.Keith has a capital balance of $51,000 and Jim has a capital balance of $39,000.Bill contributes a building with a fair market value of $27,000 to the partnership for an ownership interest of 20%.How much is the total bonus for the existing partners?

Accepted Answer

Bill will get an ownership interest of 20% of ($51,000 + $39,000 + $27,000)= 0.2 × $117,000 = $23,400
Total bonus to existing partners = $27,000 - $23,400 = $3600

Question 2

Keith and Jim are partners.Keith has a capital balance of $49,000 and Jim has a capital balance of $38,000.Bill invested $33,000 to acquire an ownership interest of 30%.Which of the following statements is TRUE of this transaction? (Round the final answer to the nearest dollar. )

Accepted Answer

Bill's ownership in the partnership after the investment
= 0.3 × ($49,000 + $38,000 + $33,000)= $36,000
Bill's equity bonus = $36,000 - $33,000 = $3000

Question 3

The death of a partner dissolves the partnership.

Accepted Answer

According to the law, the death of a partner dissolves the partnership. The surviving partners do not continue the partnership unless there is a specific agreement in the partnership agreement or unless the business is set up as a corporation, where ownership can be transferred to heirs or other shareholders.

Question 4

When a partner withdraws his or her equity for cash,the corresponding capital account will be closed.

Accepted Answer

When a partner withdraws his or her equity for cash, the amount will be deducted from the capital account, resulting in a decrease in the partner's equity. The capital account will not be closed, but rather updated to reflect the new balance.

Question 5

Frank and Harry are partners.Frank has a capital balance of $51,000 and Harry has a capital balance of $40,000.Bill contributes a building with a fair market value of $27,000 to the partnership for an ownership interest of 20%.Calculate Bill's capital in the new partnership.

Accepted Answer

Bill will get an ownership interest of 20% of ($51,000 + $40,000 + $27,000)
= 0.2 × $118,000 = $23,600

Question 6

Sarah and Jane formed a partnership with capital contributions of $210,000 and $123,000,respectively.Peter contributed $86,000 to acquire an ownership interest of 12% in the new partnership.How much is the total bonus for the existing partners?

Accepted Answer

Peter will get an ownership interest of 12% of ($210,000 + $123,000 + $86,000)
= 0.12 × $419,000 = $50,280.
Total bonus for the existing partners = $86,000 - $50,280 = $35,720

Question 7

When a partner dies,the partnership ceases to exist,and the deceased partner's estate will have ownership of the partner's equity in the partnership.

Accepted Answer

This is true according to the principles of partnership law. When a partner dies, the partnership is dissolved and the deceased partner's equity in the partnership passes to their estate. The remaining partners may choose to continue the partnership, but they must negotiate a new agreement and file the appropriate paperwork to establish a new partnership.

Question 8

Issac and Karl are partners.Issac has a capital balance of $25,000 and Karl has a capital balance of $20,000.Bill invested $15,000 to acquire an ownership interest of 30%.How does this transaction affect the balance sheet items?

Accepted Answer

With Bill's investment of $15,000 for a 30% ownership interest, the assets will increase by $15,000 and the equity will also increase. Issac and Karl will now have a combined capital balance of $45,000 ($25,000 + $20,000), and Bill will have a capital balance of $6,500 ($15,000 x 0.3). The total equity will be $51,500 and the assets will increase by $15,000. Therefore, both assets and equity will increase.

Question 9

Simonsen,Paulson,and Richardson are partners in a firm with the following capital account balances:  The profit-and-loss-sharing ratio among Simonsen,Paulson,and Richardson is 1:3:2,in the order given.Paulson is retiring from the partnership on December 31,2018.Paulson's capital account is settled at book value.Which of the following journal entries would the firm record for Paulson's withdrawal?

Accepted Answer

Paulson withdraws from the partnership by receiving cash for the book value of her capital account.Paulson's capital account is now closed,and Simonsen and Richardson may or may not continue in the new partnership.If they continue,they will need to draft a new partnership agreement and determine a new profit-and-loss-sharing ratio.

Question 10

Allan and Ralph are partners.Allan has a capital balance of $92,000 and Ralph has a capital balance of $75,000.Carol invested $60,000 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

When Carol invests $60,000 to acquire an ownership interest of $50,000, the total capital of the partnership increases by $50,000 (Carol's investment amount). Therefore, both the assets and equity of the partnership will increase. Allan and Ralph's capital balances will remain unchanged, and Carol's capital balance will be $50,000.

Question 11

Lauren and Elizabeth are partners.Lauren has a capital balance of $125,000 and Elizabeth has a capital balance of $110,000.Harry invested $100,000 to acquire an ownership interest of 30%.The journal entry to record the receipt of Harry's contribution will ________.

Accepted Answer

Partnership capital before admission of new partner = $125,000 + $110,000 = $235,000
 11ea8a75_4311_5f71_a2a1_43cfaf6ab7cf_TB6701_00 In this case Harry entered the partnership at a price less than the book value of his equity.
The bonus came to Harry from the other partners so their capital accounts are reduced in the amount of the bonus.

Question 12

A withdrawing partner acquires a bonus if the assets they receive in the dissolution are worth more than the book value of their equity.

Accepted Answer

This is known as a bonus or a gain on withdrawal. It occurs when the assets received by the withdrawing partner have a fair market value greater than their book value. This gain is usually distributed among the remaining partners in the firm.

Question 13

When an existing partner sells his interest to another party in a personal transaction ________.

Accepted Answer

When an existing partner sells his interest to another party in a personal transaction, the journal entry simply debits the withdrawing partner's capital account and credits the new partner's capital. This does not affect the balance sheet equity or assets, and the old partnership will continue functioning, since the partner is replaced by another party without diluting the old partnership. It is not considered a transaction between the partnership and the new party.

Question 14

Anna and Naomi are partners.Anna has a capital balance of $49,000 and Naomi has a capital balance of $42,000.Gary invested $27,000 to acquire an ownership interest of $18,000.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

The correct journal entry to record Gary's contribution involves debiting Cash for the actual amount received ($27,000) and crediting Gary, Capital for his ownership interest ($18,000). The difference between the cash received and the capital credited represents a bonus to the existing partners, which is not directly shown in this entry but affects their capital accounts indirectly.

Question 15

Marshall retires from the partnership of Marshall,Mark,and Dennis.Marshall had a capital balance of $25,000.If Marshall received $25,000 as final settlement,how will this transaction affect the balance sheet items?

Accepted Answer

Marshall received the book value of his capital account (no bonuses).His Capital account will be debited (decrease equity)and Cash will be credited.

Question 16

Whenever a partner mix in a partnership changes,the old partnership ceases to exist and a new partnership begins.

Accepted Answer

This is correct as whenever there is a change in the partnership, whether it's a new partner joining, leaving or changing the percentage of their ownership, the old partnerships ceases to exist and a new partnership agreement needs to be formed.

Question 17

When a partner withdraws his or her partnership interest for cash,the liabilities in the balance sheet remain unchanged.

Accepted Answer

When a partner withdraws his or her partnership interest for cash, it only affects the partner's capital account and does not affect the liabilities in the balance sheet. Therefore, the liabilities remain unchanged.

Question 18

Gary,Peter,and Chris own a firm as partners.Gary has a capital balance of $22,000;Peter a capital balance of $42,000;and Chris has a capital balance of $32,000.As per the partnership agreement,Gary gets a profit share of 2/9;Peter has 4/9;and Chris has 3/9.Which of the following is TRUE,if Gary withdraws from the partnership by receiving $22,000?

Accepted Answer

The debit entry to Gary,Capital account will close his capital account.There are no bonuses since Gary received the book value of his capital account.

Question 19

When a partner withdraws his or her interest in the partnership,both assets and equity will decrease.

Accepted Answer

When a partner withdraws, they take their share of the assets and equity with them, resulting in a decrease for the partnership as a whole.

Question 20

If a withdrawing partner receives assets worth more than the book value of his or her equity,the capital accounts of the remaining partners decrease.

Accepted Answer

This is true because when a partner withdraws and receives assets worth more than their book value, the remaining partners end up sharing the burden of the excess assets resulting in a decrease in their capital accounts.

Quiz 12: Partnerships