Question 1

Judy and Sue have partnership capital account balances of $600,000 and $450,000, respectively and share profits and losses equally. Sara is admitted to the partnership by investing $250,000 for a one-fourth ownership interest. The balance of Sue's Capital account after Sara is admitted is

Accepted Answer

Sara's investment of $250,000 increases the total partnership capital to $1,300,000. Sue's one-fourth ownership interest is $325,000, which is the balance of her Capital account after Sara is admitted.

Question 2

Which of the following is correct when admitting a new partner into an existing partnership?

Accepted Answer

The answer of Which of the following is correct when...

Question 3

A bonus to a new partner will

Accepted Answer

A bonus to a new partner decreases the capital balances of existing partners based on their income ratios before the admission of the new partner. This is because the bonus effectively redistributes some of the existing partners' capital to the new partner, reflecting a share of the firm's value that the new partner did not originally contribute to.

Question 4

D. Dieker purchases a 25% interest for $30,000 when the Reeves, Porter, Kiner partnership has total capital of $270,000. Prior to the admission of Dieker, each partner has a capital balance of $90,000. Each partner relinquishes an equal amount of his capital balance to Dieker. The amount to be relinquished by Kiner is

Accepted Answer

Each partner relinquishes $7,500 of their capital balance to Dieker.

Question 5

When admitting a new partner by investment, a bonus to old partners is allocated on

Accepted Answer

The answer of When admitting a new partner by investment,...

Question 6

Eberle and Lankton are partners who share income and losses in the ratio of 3:2, respectively. On August 31, their capital balances were: Eberle, $175,000 and Lankton, $150,000. On that date, they agree to admit Newman as a partner with a one-third capital interest. If Newman invests $200,000 in the partnership, what is Lankton's capital balance after Newman's admittance?

Accepted Answer

Newman's investment increases the total capital to $525,000 ($175,000 + $150,000 + $200,000). Newman's one-third interest means he should have $175,000, implying a bonus to existing partners. The bonus is $25,000 ($200,000 - $175,000), shared 3:2, giving Lankton an additional $10,000, making his balance $160,000.

Question 7

Roper and Walton have partnership capital balances of $320,000 and $240,000, respectively. Walton negotiates to sell his partnership interest to Molle for $280,000. Roper agrees to accept Molle as a new partner. The partnership entry to record this transaction is

Accepted Answer

The answer of Roper and Walton have partnership capital balances...

Question 8

Finney is admitted to a partnership with a 25% capital interest by a cash investment of $90,000. If total capital of the partnership is $390,000 before admitting Finney, the bonus to Finney is

Accepted Answer

The total capital after Finney's investment is $390,000 + $90,000 = $480,000. Finney's 25% interest should be $480,000 * 25% = $120,000. Since Finney invested $90,000, the bonus to Finney is $120,000 - $90,000 = $30,000.

Question 9

A bonus to a new partner

Accepted Answer

The answer of A bonus to a new partner
...

Question 10

When admitting a new partner by investment, a bonus to old partners

Accepted Answer

Goodwill may exist when a new partner is admitted, meaning that the partnership's net worth may be greater than the book value. This can justify a bonus to the existing partners in recognition of this increased value. The other options are not applicable as they do not account for the possibility of goodwill.

Question 11

When a partnership interest is purchased

Accepted Answer

When a partnership interest is purchased, the transaction is a personal transaction between the purchaser and the selling partner(s). This means that the other partners' capital accounts are not affected and they do not receive any part of the purchase price. The buyer will only receive equity equal to the amount of cash paid, and the selling partner(s) will receive the purchase price.

Question 12

Diaz and Helms sell to Mayo a 1/3 interest in the Diaz-Helms partnership. Mayo will pay Diaz and Helms each $70,000 for admission into the organization. Before this transaction, Diaz and Helms show capital balances of $105,000 each. The journal entry to record the admission of Mayo will

Accepted Answer

The admission of Mayo into the Diaz-Helms partnership is not a sale of the partnership's assets, but rather a sale of a portion of the partnership itself. Therefore, there is no debit to Cash. The capital accounts of Diaz and Helms will be reduced by $70,000 each, and Mayo's capital account will be credited for $140,000, representing their share in the partnership. The journal entry to record this transaction would be:

Diaz, Capital       $35,000
Helms, Capital      $35,000
To Mayo, Capital   $70,000

Question 13

Gore and Dean share partnership profits and losses in the ratio of 6:4. Gore's Capital account balance is $320,000 and Dean's Capital account balance is $200,000. Naylor is admitted to the partnership by investing $360,000 and is to receive a one-fourth ownership interest. Gore, Dean and Naylor's capital balances after Naylor's investment will be

Accepted Answer

The answer of Gore and Dean share partnership profits and...

Question 14

Bell and Herr sell 1/4 of their partnership interest to Ives receiving $200,000 each. At the time of admission, Bell and Herr each had a $350,000 capital balance. The admission of Ives will cause the net partnership assets to

Accepted Answer

If Bell and Herr each received $200,000 for selling 1/4 of their partnership interest, that means the total amount paid for the 1/2 interest is $400,000 ($200,000 x 2).

However, this does not affect the net partnership assets. The $400,000 paid to Bell and Herr is simply a transfer of assets from the partnership to the individual partners. The total capital balance of the partnership is still $700,000 ($350,000 + $350,000). Therefore, the net partnership assets remain at $700,000.

Question 15

On November 30, capital balances are Gast $120,000, Cook $100,000 and Irving $100,000. The income ratios are 20%, 20% and 60% respectively. Gast decides to retire from the partnership. The partnership pays Gast $100,000 cash for her partnership interest. After Gast's retirement, what is the balance of Irving's capital account?

Accepted Answer

The answer of On November 30, capital balances are Gast...

Question 16

The admission of a new partner to an existing partnership

Accepted Answer

Admitting a new partner into an existing partnership results in the legal dissolution of the original partnership agreement, necessitating the formation of a new agreement that includes the new partner. This does not inherently require liquidation of the business, purchasing an existing partner's interest directly, or solely investing assets into the partnership.

Question 17

Garr invests $20,000 in cash (admission by investment) in the Massey-Dix partnership to acquire a 1/4 interest. In this case

Accepted Answer

When Garr invests $20,000 in the partnership, the total capital of the new partnership increases by the amount of the investment, making it greater than the total capital of the old partnership.

Question 18

King and Otto are partners who share profits and losses equally and have capital balances of $560,000 and $490,000, respectively. Pitts is admitted into the partnership by investing $490,000 for a 30% capital interest. The account balance of Otto, Capital after the admission of Pitts would be

Accepted Answer

Before admitting Pitts, the total capital in the partnership was $1,050,000 ($560,000 + $490,000). After Pitts' investment, the total capital became $1,540,000 ($560,000 + $490,000 + $490,000).

Pitts' capital interest is 30%, so his share of the total capital is $462,000 ($1,540,000 x 0.3). The remaining capital is shared between King and Otto in equal proportions, which is $539,000 each ($1,078,000 ÷ 2).

Therefore, the account balance of Otto, Capital after the admission of Pitts would be $539,000, which is equal to his pre-admission capital balance.

Question 19

Baker and Mays each sell 1/3 of their partnership interest to Pool, receiving $140,000 each. At the time of the admission, each partner has a $420,000 capital balance. The entry to record the admission of Pool will show a

Accepted Answer

The answer of Baker and Mays each sell 1/3 of...

Question 20

Eberle and Lankton are partners who share income and losses in the ratio of 3:2, respectively. On August 31, their capital balances were: Eberle, $175,000 and Lankton, $150,000. On that date, they agree to admit Newman as a partner with a one-third capital interest. If Newman invests $125,000 in the partnership, what is Eberle's capital balance after Newman's admittance?

Accepted Answer

After Newman's investment of $125,000, the total capital of the partnership will be $450,000 (175,000 + 150,000 + 125,000). Newman's capital interest will be one-third of this total or $150,000.

Eberle and Lankton will still share income and losses in the ratio of 3:2. This means that Eberle's share of the remaining capital ($300,000 - $150,000) will be three-fifths, or $180,000.

Adding Eberle's remaining capital balance ($180,000) to Newman's capital interest ($150,000) gives a total capital of $330,000. Therefore, Eberle's current capital balance is $160,000 ($330,000 x 3/5).

Quiz 12: Accounting for Partnerships