Question 1

"Limited life" in a partnership agreement means:
A)a partnership is limited in the amount of debt it is liable for in the course of the business.
B)a partnership is limited to the amount of revenue it can earn.
C)a partnership may be dissolved if the location of the business has changed.
D)a partnership may be dissolved as the result of any change in the ownership.

Accepted Answer

"Limited life" in a partnership agreement means that the partnership may be dissolved as the result of any change in the ownership. This means that if one of the partners wants to leave the partnership or if a new partner is added, it could lead to the dissolution of the partnership. It is important for partners to clearly define the conditions of the partnership's dissolution in the agreement.

Question 2

A partnership admits a new partner.The new partner invests $70,000 in the business and receives a credit of $90,000 to his capital account.The difference of $20,000 is called a(n):
A)admission fee.
B)partnership expense.
C)bonus.
D)illegal activity.

Accepted Answer

The $20,000 difference between the new partner's investment of $70,000 and the credit of $90,000 to his capital account is known as a bonus. This is usually offered as an incentive for the new partner to join the partnership and is determined by the existing partners.

Question 3

A bonus paid by an incoming partner to the old partners is shared:
A)equally.
B)by the salary method.
C)on the basis of profit and loss ratio.
D)by the interest method.

Accepted Answer

When a new partner is admitted, a bonus may be paid by the new partner to the old partners as a form of compensation for their past services and goodwill. This bonus is generally shared among the old partners on the basis of their profit and loss sharing ratio. This is because the old partners have contributed to the profits of the firm for many years and their share in the profits reflects their contribution to the firm. Therefore, it is fair to share the bonus on the basis of their profit and loss sharing ratio. The other methods listed (equal sharing, salary method, interest method) are not appropriate in this context.

Question 4

Katie withdrew from the partnership of Katie,Courtney,and Nathan,and accepted $10,000 cash.Her capital balance was $16,000 and the difference will be shared in a ratio of 2:1 for Courtney and Nathan,respectively.The entry would be to:
A)debit Cash $10,000;credit Nathan,Capital $10,000.
B)debit Nathan,Capital $16,000;credit Cash $16,000.
C)debit Katie,Capital $16,000;credit Cash $10,000;credit Courtney,Capital $4,000;credit Nathan,Capital $2,000.
D)debit Cash $16,000;debit Nathan,Capital $4,000;debit Courtney,Capital $2,000;credit Katie,Capital $18,000.

Accepted Answer

When Katie withdrew from the partnership, she received $10,000 cash. This transaction affects both the cash account and the capital accounts of the partners. Katie's capital account had a balance of $16,000, so she would need to be credited for that amount. The remaining balance of $6,000 ($16,000 - $10,000) would be split between Courtney and Nathan, in a ratio of 2:1 respectively. So, Courtney would receive $4,000 ($6,000 * 2/3) and Nathan would receive $2,000 ($6,000 * 1/3).

Therefore, the entry to record Katie's withdrawal would be:
Debit Cash $10,000
Credit Katie, Capital $16,000
Credit Courtney, Capital $4,000
Credit Nathan, Capital $2,000

Question 5

Nathan invests $2,000 for 10% interest in a partnership that has total capital of $17,000 after admitting Nathan.Which of the following is true?
A)Nathan's capital is $1,700.
B)The original partners received a bonus of $200.
C)Nathan received a bonus of $300.
D)The original partners' capital in the business was $19,000 before admitting Nathan.

Accepted Answer

The answer of Nathan invests $2,000 for 10% interest in...

Question 6

Allan and Rick are partners who share profits and losses in the ratio of 3:2 for Allan and Rick,respectively.They have capital balances of $35,000 and $40,000,respectively.If Tammy invests $30,000 for one-third interest,Tammy's capital balance will be:
A)$35,000.
B)$23,750.
C)$31,667.
D)$21,667.

Accepted Answer

The answer of Allan and Rick are partners who share...

Question 7

Bernstein is brought into the partnership.His capital is equal to his net assets that he brings to the partnership.He brings assets of $167,000 and liabilities of $30,000.His capital balance will be:
A)$30,000 (cash invested).
B)$167,000 (total of all assets invested).
C)$140,000.
D)$137,000.

Accepted Answer

The answer of Bernstein is brought into the partnership.His capital...

Question 8

Track and Smith are partners sharing profits and losses in a 3:2 ratio for Track and Smith,respectively.Their capital balances are $12,000 and $18,000,respectively.The partners agree to admit Don for $8,000 for a 30% interest in the partnership.Smith's capital balance after admitting Don is:
A)$12,000.
B)$19,200.
C)$16,640.
D)$10,000.

Accepted Answer

Smith's capital balance after admitting Don is $16,640.The total capital of the partnership after admitting Don is $12,000 + $18,000 + $8,000 = $38,000.Smith's share of the partnership after admitting Don is 30% * $38,000 = $11,400.Smith's capital balance after admitting Don is $18,000 - $11,400 = $16,640.

Question 9

Tim and Bev are partners who share profits and losses in the ratio of 6:4 for Tim and Bev,respectively.Their capital balances are $45,000 and $25,000,respectively.If Jenny is admitted to the partnership for $25,000 for a one-fourth interest,her capital balance will be:
A)$26,667.
B)$20,000.
C)$25,000.
D)$23,750.

Accepted Answer

The answer of Tim and Bev are partners who share...

Question 10

A partnership can be joined by:
A)investing into the business.
B)purchasing an equity interest in the business.
C)buying out one of the partners and taking over their interest (by mutual agreement).
D)All of the above are correct.

Accepted Answer

All of the given options are correct ways of joining a partnership. Investing into the business or purchasing an equity interest means providing the partnership with additional funds or resources, while buying out one of the partners and taking over their interest allows for a new partner to replace the old one. Thus, all three options are viable ways to join a partnership.

Question 11

When a partnership is dissolved:
A)it is implied that the business cannot form a different ownership structure.
B)it is implied that the business cannot continue with a new group of partners.
C)it is implied that it must be dissolved with any change in partnership structure.
D)it is implied that the business will halt operations.

Accepted Answer

Dissolution of a partnership typically means that the existing partnership agreement comes to an end, often due to changes in the partnership structure, such as the departure or addition of partners. It does not necessarily mean the business cannot continue under a new agreement or structure.

Question 12

Jane invests $5,000 for a one-fourth interest in a partnership in which the other partners have capital totaling $20,000 before admitting Jane.After distribution of the bonus,Jane's capital is:
A)$4,000.
B)$6,000.
C)$8,000.
D)$6,250.

Accepted Answer

The total capital after admitting Jane is $25,000 ($20,000 + $5,000). As Jane has invested $5,000 for a one-fourth interest, the total value of the partnership is $20,000 (4 x $5,000).

If a bonus of $5,000 is distributed, the total partnership value increases to $25,000 ($20,000 + $5,000 bonus). Jane's one-fourth interest in the partnership is now worth $6,250 (1/4 x $25,000). Therefore, Jane's capital is $6,250 after distribution of the bonus.

Hence, the correct answer is choice D ($6,250).

Question 13

Mindy and Heather are partners who have agreed to allow Carol to purchase Heather's share for a direct payment of $30,000 to Heather.Mindy and Heather's previous capital balances were $10,000 and $15,000,respectively.What will be the amount in Carol's capital account?
A)$15,000
B)$10,000
C)$30,000
D)Some other number

Accepted Answer

The answer of Mindy and Heather are partners who have...

Question 14

Bill pays Steve $12,000 for his $9,000 interest in a partnership.On the partnership books:
A)Bill will have capital of $9,000.
B)Bill will have capital of $12,000.
C)Bill will have capital of $4,000.
D)None of these answers is correct.

Accepted Answer

Bill will have capital of $9,000 because he is purchasing Steve's interest in the partnership, which is valued at $9,000 on the partnership books, regardless of the amount he paid.

Question 15

When a partner withdraws from a partnership,the company can:
A)audit the accounting records and adjust assets to fair market value.
B)credit the account of the partner that withdrew and debit Cash.
C)share any loss or profit from the historical value of assets.
D)None of the above answers is correct.

Accepted Answer

When a partner withdraws, the partnership typically audits the accounting records and adjusts the assets to their fair market value to ensure that the withdrawing partner receives a fair settlement based on the current value of the partnership's assets.

Question 16

When a partner withdraws,the partnership may have an audit to adjust the assets to their:
A)historic cost.
B)depreciated value.
C)fair market value.
D)book value.

Accepted Answer

When a partner withdraws, the partnership may have an audit to adjust the assets to their fair market value. This is because the withdrawing partner needs to receive their share of the partnership assets at their current market value, not historic cost or book value. Depreciated value may also be a consideration for certain assets, but fair market value is typically the most important factor in determining how the assets will be divided among the partners.

Question 17

An investment by a new partner was debited to existing partners' capital balances.This error would cause:
A)the new partner's capital account to be understated.
B)the period end partners' equity to be understated.
C)the period end assets to be overstated.
D)None of these is correct.

Accepted Answer

Debiting the investment to the existing partners' capital balances would result in an overstatement of their capital accounts and an understatement of the new partner's capital account. This would cause the period end partners' equity to be understated since the total capital balances would not include the new partner's investment. The error does not affect the period end assets.

Question 18

A bonus is paid to the old partners when:
A)the old partner believes the business is worth less than the amounts recorded in the accounting records.
B)the equity of a partnership is worth more than what is recorded in the accounting records.
C)the company's earnings records are less than expected.
D)None of these answers is correct.

Accepted Answer

A bonus is typically paid to old partners when the equity of the partnership is worth more than what is recorded in the accounting records. This often occurs when the partnership's assets or earnings have significantly increased since the last valuation or when the partners have made significant contributions to the business. Option A is incorrect because it refers to a situation where the old partner believes the business is worth less than recorded, which would not result in a bonus payment. Option C is also incorrect because lower-than-expected earnings would not typically result in a bonus payment. Option D states that none of the answers are correct, which is not accurate as option B is correct.

Question 19

Cory,Brooke,and Amy share profits and losses in a 2:1:1 ratio,respectively,in their partnership.The assets are to be reduced $10,000 in value when Brooke wishes to leave the partnership.If each partner had a capital balance of $30,000 before Brooke's notification of withdrawal,what amount should Brooke be allowed to withdraw from the partnership?
A)$25,000
B)$27,500
C)$26,250
D)$33,000

Accepted Answer

Brooke's share of the $10,000 reduction in assets is $2,500 (1/4 of $10,000). Therefore, her capital balance after the reduction is $30,000 - $2,500 = $27,500.

Question 20

When recording a bonus to a new partner,the new partner will:
A)pay more than what the new partner's capital account will reflect.
B)pay the same as the other partners' capital accounts.
C)pay less than the new partner will receive in the capital account.
D)have no bonus recorded as a bonus cannot be paid to new partners.

Accepted Answer

The bonus paid to a new partner is often less than what the new partner will receive in the capital account. This is because the new partner has not contributed to the business for as long as the existing partners and may not have earned as much profit. Therefore, the bonus is a way to compensate the new partner without diluting the ownership interest of the existing partners.

Quiz 17: Partnership

"Limited life" in a partnership agreement means:

A partnership admits a new partner.The new partner invests $70,000 in the business and receives a credit of $90,000 to his capital account.The difference of $20,000 is called a(n) :

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

Katie withdrew from the partnership of Katie,Courtney,and Nathan,and accepted $10,000 cash.Her capital balance was $16,000 and the difference will be shared in a ratio of 2:1 for Courtney and Nathan,respectively.The entry would be to:

Nathan invests $2,000 for 10% interest in a partnership that has total capital of $17,000 after admitting Nathan.Which of the following is true?

Allan and Rick are partners who share profits and losses in the ratio of 3:2 for Allan and Rick,respectively.They have capital balances of $35,000 and $40,000,respectively.If Tammy invests $30,000 for one-third interest,Tammy's capital balance will be:

Bernstein is brought into the partnership.His capital is equal to his net assets that he brings to the partnership.He brings assets of $167,000 and liabilities of $30,000.His capital balance will be:

Track and Smith are partners sharing profits and losses in a 3:2 ratio for Track and Smith,respectively.Their capital balances are $12,000 and $18,000,respectively.The partners agree to admit Don for $8,000 for a 30% interest in the partnership.Smith's capital balance after admitting Don is:

Tim and Bev are partners who share profits and losses in the ratio of 6:4 for Tim and Bev,respectively.Their capital balances are $45,000 and $25,000,respectively.If Jenny is admitted to the partnership for $25,000 for a one-fourth interest,her capital balance will be:

A partnership can be joined by:

When a partnership is dissolved:

Jane invests $5,000 for a one-fourth interest in a partnership in which the other partners have capital totaling $20,000 before admitting Jane.After distribution of the bonus,Jane's capital is:

Mindy and Heather are partners who have agreed to allow Carol to purchase Heather's share for a direct payment of $30,000 to Heather.Mindy and Heather's previous capital balances were $10,000 and $15,000,respectively.What will be the amount in Carol's capital account?

Bill pays Steve $12,000 for his $9,000 interest in a partnership.On the partnership books:

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

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

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

A bonus is paid to the old partners when:

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