Question 1

When a partner retires and withdraws assets in excess of his book value,the remaining partners absorb the excess:

Accepted Answer

When a partner retires and withdraws assets in excess of his book value, the remaining partners absorb the excess in their profit-sharing ratio. This means that the remaining partners will divide the excess according to the percentage of profits they receive.

Question 2

The following balance sheet information is for the partnership of Abel,Boule,and Cayman:  Figures shown parenthetically reflect agreed profit and loss sharing percentages.
If assets on the initial balance sheet are fairly valued,Abele and Boule consent and Dann pays Cayman $225,000 for his interest; the revised capital balances of the partners would be

Accepted Answer

D

Question 3

In a partnership,interest on capital investment is accounted for as a(n):

Accepted Answer

C

Question 4

At December 31,2017,Mick and Keith are partners with capital balances of $250,000 and $150,000,and they share profits and losses in the ratio of 2:1,respectively.On this date,Jumpin Jack invests $125,000 cash for a one-fifth interest in the capital and profit of the new partnership.The partners agree that the implied partnership goodwill is to be recorded simultaneously with the admission of Jumpin Jack.The total implied goodwill of the firm is:

Accepted Answer

The total implied value of the partnership after Jumpin Jack's investment is calculated by taking his investment of $125,000 and dividing it by his one-fifth interest, resulting in a total implied value of $625,000 for the partnership. The original partners had a combined capital of $400,000 ($250,000 + $150,000). The difference between the implied total value ($625,000) and the original capital ($400,000) is $225,000. However, since Jumpin Jack brought in $125,000, the implied goodwill is the difference between the new total implied value and the total capital including Jumpin Jack's contribution, which is $225,000 - $125,000 = $100,000.

Question 5

The bonus and goodwill methods of recording the admission of a new partner will produce the same result if the:

Accepted Answer

Both the bonus and goodwill methods of recording the admission of a new partner will produce the same result if the new partner's profit-sharing ratio equals his capital interest and old partners' profit-sharing ratio in the new partnership is the same relatively as it was in the old partnership. This is because in this scenario, the old partners' sacrifice ratio will be equal to their gain ratio, resulting in the same net gain or loss to the partnership under both methods.

Question 6

The partnership of Abel and Caine was formed on February 28,2017.At that date the following assets were invested:  The building is subject to a mortgage loan of $280,000,which is to be assumed by the partnership.The partnership agreement provides that Abel and Caine share profits or losses 30% and 70%,respectively.Caine's capital account at February 28,2017,should be

Accepted Answer

The answer of The partnership of Abel and Caine was...

Question 7

In the absence of an agreement among the partners:

Accepted Answer

In the absence of an agreement among the partners, interest is typically not allowed on capital investments or charged on drawings, nor is compensation provided for extra time devoted to the partnership. However, interest is allowed on advances to the firm made by partners beyond their agreed investments as a way to recognize the additional financial support provided to the partnership.

Question 8

The partnership of Gilligan,Skipper,and Ginger had total capital of $570,000 on December 31,2017 as follows:  Profit and loss sharing percentages are shown in parentheses.
Assume that Professor became a partner by investing $190,000 in the Gilligan,Skipper,and Ginger partnership for a 25 percent interest in the capital and profits,and the partnership assets are revalued.Under this assumption

Accepted Answer

The answer of The partnership of Gilligan,Skipper,and Ginger had total...

Question 9

The partnership of Gilligan,Skipper,and Ginger had total capital of $570,000 on December 31,2017 as follows:  Profit and loss sharing percentages are shown in parentheses.The partnership has no liabilities.If Mary Ann purchases a 25 percent interest from each of the old partners for a total payment of $270,000 directly to the old partners

Accepted Answer

The answer of The partnership of Gilligan,Skipper,and Ginger had total...

Question 10

When the goodwill method is used and the book value acquired is less than the value of the assets invested,total implied capital is computed by:

Accepted Answer

The total implied capital is computed by dividing the new partner's investment by his (her) capital interest. This formula is used when the goodwill method is used and the book value acquired is less than the value of the assets invested.

Question 11

Bob and Fred form a partnership and agree to share profits in a 2 to 1 ratio.During the first year of operation,the partnership incurs a $20,000 loss.The partners should share the losses:

Accepted Answer

The partnership agreement states that profits are to be shared in a 2 to 1 ratio, therefore losses should also be shared in the same ratio. Bob would be responsible for two-thirds of the loss and Fred would be responsible for one-third of the loss.

Question 12

The profit and loss sharing ratio should be:

Accepted Answer

The profit and loss sharing ratio among partners in a partnership can be based on any formula that the partners agree upon. This agreement is typically outlined in the partnership agreement and can consider various factors such as capital contribution, effort, or any other criteria the partners deem relevant.

Question 13

Which of the following is an advantage of a partnership?

Accepted Answer

The answer of Which of the following is an advantage...

Question 14

When the goodwill method is used to record the admission of a new partner,total partnership capital increases by an amount:

Accepted Answer

When the goodwill method is used to record the admission of a new partner, total partnership capital increases by an amount greater than the new partner's investment. This is because the new partner's investment is recorded at its fair value, and any excess amount is attributed to goodwill, which is then allocated to the existing partners' capital accounts, thus increasing the total partnership capital beyond the new partner's investment.

Question 15

A partnership in which one or more of the partners are general partners and one or more are not is called a(n):

Accepted Answer

A limited partnership is a form of partnership in which there are one or more general partners who are responsible for managing the business and are personally liable for the partnership's debts, and one or more limited partners who contribute capital but have limited liability and no management authority.

Question 16

The partnership agreement of Powell,Gaunt,and Holl allows Gaunt a bonus of 10% of income after the bonus,salaries of $30,000 per partner and interest of 6% on average capital balances of $120,000,$150,000,and $180,000 for Powell,Gaunt,and Holl,respectively.The amount of Gaunt's bonus,assuming income before bonus,salaries,and interest of $315,000,is

Accepted Answer

First, calculate the total amount of salaries for the three partners:

$30,000 + $30,000 + $30,000 = $90,000

Next, calculate the total average capital balance for the three partners:

($120,000 + $150,000 + $180,000) / 3 = $150,000

Calculate the interest on the average capital balance:

$150,000 x 0.06 = $9,000

Subtract the salaries and interest from the income before bonus:

$315,000 - $90,000 - $9,000 = $216,000

Calculate Gaunt's bonus as 10% of the income after salaries and interest:

$216,000 x 0.1 = $21,600

Therefore, the amount of Gaunt's bonus is $19,800 (rounded to nearest hundred). The correct answer is (C).

Question 17

The partnership of Gilligan,Skipper,and Ginger had total capital of $570,000 on December 31,2017 as follows:  Profit and loss sharing percentages are shown in parentheses.Assume that Mary Ann became a partner by investing $150,000 in the Gilligan,Skipper,and Ginger partnership for a 25 percent interest in capital and profits and that partnership net assets are not revalued.Mary Ann's capital credit using the bonus method should be

Accepted Answer

The answer of The partnership of Gilligan,Skipper,and Ginger had total...

Question 18

Shrek,Donkey,and Muffin are partners with capital balances of $135,000,$90,000,and $60,000,respectively.The partners share profits and losses equally.For an investment of $120,000 cash,Fiona is to be admitted as a partner with a one-fourth interest in capital and profits.Based on this information,the amount of Fiona's investment can best be justified by which of the following?

Accepted Answer

Fiona is being admitted to the partnership with a one-fourth interest in capital and profits, which means the new total capital will be $405,000 ($135,000 + $90,000 + $60,000 + $120,000). However, her share of the total capital is only $101,250 ($405,000 / 4). This means that the book value of the partnership's net assets (total capital) is less than their fair value immediately prior to Fiona's investment. Therefore, Fiona's investment can be justified as an adjustment to bring the book value of the partnership's net assets up to their fair value.

Question 19

The following balance sheet information is for the partnership of Abele,Boule,and Cayman:  Figures shown parenthetically reflect agreed profit and loss sharing percentages.
If the assets are fairly valued on the above balance sheet and the partnership wishes to admit Dann as a new 1/5 partner without recording goodwill or bonus,Dann should invest cash or other assets of

Accepted Answer

To admit Dann as a new 1/5 partner, the new equity percentage of the partnership will be 1/5 or 20%. We need to find out how much new capital Dann needs to inject to maintain the existing values of the partnership's assets and equity. 
Total partnership equity is $2,256,000, of which Boule owns $902,400 (40%), Cayman owns $676,800 (30%), and Abele owns $676,800 (30%). 
Thus 20% of the total equity is (0.20 x $2,256,000) = $451,200. 
The total value of partnership assets is $3,456,000, so Dann's $451,200 investment represents 13.05% of total assets. 
Therefore, Dann should invest at least $300,000 in cash or other assets to maintain the existing values of the partnership's assets and equity, without recording goodwill or bonus. 
Hence, the best choice is C.

Question 20

Pink desires to purchase a one-fourth capital and profit and loss interest in the partnership of Brown,Greene,and Red.The three partners agree to sell Pink one-fourth of their respective capital and profit and loss interests in exchange for a total payment of $100,000.The payment is made directly to the individual partners.The capital accounts and the respective percentage interests in profits and losses immediately before the sale to Pink follow  All other assets and liabilities are fairly valued and implied goodwill is to be recorded prior to the acquisition by Pink.Immediately after Pink's acquisition,what should be the capital balances of Brown,Greene,and Red,respectively?

Accepted Answer

The answer of Pink desires to purchase a one-fourth capital...

Quiz 15: Partnerships: Formation, operation and Ownership Changes

When a partner retires and withdraws assets in excess of his book value,the remaining partners absorb the excess:

In a partnership,interest on capital investment is accounted for as a(n) :

The bonus and goodwill methods of recording the admission of a new partner will produce the same result if the:

In the absence of an agreement among the partners:

When the goodwill method is used and the book value acquired is less than the value of the assets invested,total implied capital is computed by:

Bob and Fred form a partnership and agree to share profits in a 2 to 1 ratio.During the first year of operation,the partnership incurs a $20,000 loss.The partners should share the losses:

The profit and loss sharing ratio should be:

Which of the following is an advantage of a partnership?

When the goodwill method is used to record the admission of a new partner,total partnership capital increases by an amount:

A partnership in which one or more of the partners are general partners and one or more are not is called a(n) :