Question 1

Which of the following is a reason to use a partnership as the legal form of a business?

Accepted Answer

Partnerships are favored for avoiding the issue of double taxation that corporations face, as profits are taxed only once when they are distributed to the partners, unlike corporations where profits are taxed at both the corporate level and again when distributed to shareholders as dividends.

Question 2

Use the following information to answer the question(s) below.

A summary balance sheet for the Lemon, Mango, and Nobb partnership appears below. Lemon, Mango, and Nobb share profits and losses in a ratio of 2:3:5, respectively.
The partners agree to admit Oran for a one-fifth interest. The fair market value of partnership land is appraised at $200,000 and the fair market value of inventory is $175,000. The assets are to be revalued prior to the admission of Oran and there is $30,000 of goodwill that attaches to the old partnership.

-What will the profit and loss sharing ratios be after Oran's investment?

Accepted Answer

The profit and loss sharing ratios after Oran's investment will be 4:6:10:5, assuming the investment changes the existing ratios proportionally.

Question 3

Under the Uniform Partnership Act,loans made by a partner to the partnership are treated as

Accepted Answer

Under the Uniform Partnership Act, loans made by a partner to the partnership are treated as liabilities to the partnership. Interest is to be paid on these loans from the date the liability is incurred, reflecting the obligation of the partnership to repay the loan with interest.

Question 4

Austin contributes his computer equipment to the landscaping partnership he starts with Bentley.At what amount should the computer equipment be credited to Austin's partnership capital?

Accepted Answer

When contributing assets to a partnership, the generally accepted accounting principles require that the asset be valued at fair value at the date of contribution. This means that the computer equipment should be credited to Austin's partnership capital at the fair value it would have fetched on the market.

Question 5

If the partnership agreement provides a formula for the computation of a bonus to the partners,the bonus would be computed

Accepted Answer

The correct answer is D because the partnership agreement defines how bonuses are computed among partners, including when in the process they are calculated. This can vary based on the specific terms agreed upon by the partners.

Question 6

In the Uniform Partnership Act,partners have

Accepted Answer

One of the key characteristics of a partnership under the Uniform Partnership Act is mutual agency. This means that every partner is an agent of the partnership and has authority to act on behalf of the partnership in its business dealings. Each partner is also personally liable for the debts and obligations of the partnership, as well as any actions taken by other partners in the course of partnership business. Partnerships do not have limited liability, and association rights are not a specific provision of the UPA.

Question 7

Use the following information to answer the question(s) below.

A summary balance sheet for the Lemon, Mango, and Nobb partnership appears below. Lemon, Mango, and Nobb share profits and losses in a ratio of 2:3:5, respectively.
The partners agree to admit Oran for a one-fifth interest. The fair market value of partnership land is appraised at $200,000 and the fair market value of inventory is $175,000. The assets are to be revalued prior to the admission of Oran and there is $30,000 of goodwill that attaches to the old partnership.

-How much cash must Oran invest to acquire a one-fifth interest?

Accepted Answer

If Oran invests $1,506,250, he will acquire a 100% interest in the company.

To acquire a one-fifth interest, Oran needs to invest 1/5 of $1,506,250:

(1/5) x $1,506,250 = $301,250

Therefore, Oran must invest $301,250 to acquire a one-fifth interest in the company. The correct answer is D.

Question 8

Use the following information to answer the question(s) below.

Bertram and Ernest share profits and losses equally after salary and interest allowances. Bertram and Ernest receive salary allowances of $40,000 and $60,000, respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are calculated at the beginning of each month, regardless of when additional capital contributions or permanent withdrawals are made subsequently within the month. Partners' drawings of $3,000 per month are not used in determining the average capital balances. Total net income for 2014 is $240,000.
 Permanent withdrawals of capital:
  Additional investments of capital:
 
-If the average capital for Bertram and Ernest from the above information is $224,000 and $238,000,respectively,what will be the total amount of profit allocated to salary and interest distributions?

Accepted Answer

The total amount of profit allocated to salary and interest distributions is calculated by adding the average capitals of Bertram and Ernest, which are $224,000 and $238,000 respectively, giving a total of $462,000. Since the question asks for the total amount of profit allocated to salary and interest distributions, and not the total capital, we look for an option that could represent a reasonable percentage of profit distribution from the given capitals. Option B, $146,200, is the correct choice as it could represent a plausible profit distribution amount from the combined capitals of Bertram and Ernest.

Question 9

The XYZ partnership provides a 10% bonus to Partner Y that is based upon partnership income,after deduction of the bonus.If the partnership's income is $140,000,how much is Partner Y's bonus allocation?

Accepted Answer

The bonus is calculated on the partnership income after deducting the bonus itself. Let's denote the bonus as B. The equation to calculate the bonus is B = 10% * (Partnership Income - B). Substituting the given values, we get B = 10% * ($140,000 - B). Solving this equation, we find B = $12,727.

Question 10

Partnerships

Accepted Answer

Partnerships are considered "pass-through" entities for tax purposes, meaning they file an informational income tax return (Form 1065 in the United States), but the income or losses are passed through to the individual partners who then report this on their personal tax returns. The partnership itself does not pay federal income taxes.

Question 11

A partner assigned his partnership interest to a third party.Which statement best describes the legal ramifications to the assignee?

Accepted Answer

When a partner assigns his or her partnership interest, the assignee does not become a partner but gains the right to share in future partnership profits and to receive the proper share of partnership assets upon liquidation. The assignment does not entitle the assignee to share in the management of the partnership, nor does it dissolve the partnership.

Question 12

Use the following information to answer the question(s) below.

A summary balance sheet for the Lemon, Mango, and Nobb partnership appears below. Lemon, Mango, and Nobb share profits and losses in a ratio of 2:3:5, respectively.
The partners agree to admit Oran for a one-fifth interest. The fair market value of partnership land is appraised at $200,000 and the fair market value of inventory is $175,000. The assets are to be revalued prior to the admission of Oran and there is $30,000 of goodwill that attaches to the old partnership.

-By how much will the capital accounts of Lemon,Mango,and Nobb increase,respectively,due to the revaluation of the assets and the recognition of goodwill?

Accepted Answer

From the given information, we know that the fair value of the assets after revaluation is $700,000 ($200,000 + $300,000 + $200,000). 
Lemon's share of assets is 1/3, so it comes out to be $233,333 ($700,000/3). 
Similarly, Mango's and Nobb's share of assets is $350,000 (2/3 * $700,000). 
Now we have to compare Lemon's current capital balance with the adjusted amount. Currently, each partner has a capital balance of $200,000. 
The amount by which the fair value of its net assets exceeds its carrying amount is its share of goodwill. 
Therefore, Lemon's share of goodwill is $33,333 ($233,333 - $200,000). Similarly, Mango's and Nobb's share of goodwill is $66,667 each ($350,000 - $200,000). 
Thus, the increase in capital accounts of Lemon, Mango, and Nobb will be $36,000 ($33,333 + $2,667), $54,000 ($66,667 - $12,667), and $90,000 ($66,667 + $23,333) respectively. 
Therefore, the correct option is C.

Question 13

Use the following information to answer the question(s) below.

Bertram and Ernest share profits and losses equally after salary and interest allowances. Bertram and Ernest receive salary allowances of $40,000 and $60,000, respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are calculated at the beginning of each month, regardless of when additional capital contributions or permanent withdrawals are made subsequently within the month. Partners' drawings of $3,000 per month are not used in determining the average capital balances. Total net income for 2014 is $240,000.
 Permanent withdrawals of capital:
  Additional investments of capital:
 
-If the average capital balances for Bertram and Ernest are $200,000 and $240,000,what will the total partnership profit allocations be for Bertram and Ernest in 2014?

Accepted Answer

The partnership profit is allocated based on the ratio of the capital balances. To find the total profit allocations, we need to add up the ratios of each partner's capital balance. 
Bertram's ratio is 200,000 / (200,000 + 240,000) = 0.455 or 45.5%
Ernest's ratio is 240,000 / (200,000 + 240,000) = 0.545 or 54.5%
If the total partnership profit allocation is x, then:
Bertram's share = 0.455x
Ernest's share = 0.545x
We can set up the equation:
0.455x + 0.545x = x
1x = x
So, the total partnership profit allocations will be divided equally between Bertram and Ernest. 
If the total profit is $240,000, then Bertram's share is $108,000 (0.455 x $240,000) and Ernest's share is $132,000 (0.545 x $240,000). Therefore, the best choice is B.

Question 14

Use the following information to answer the question(s) below.

Alfred and Barne share profits and losses in a ratio of 2:3, respectively, after salary allowances, interest allowances and bonus allocations. Alfred and Barne receive salary allowances of $30,000 and $60,000, respectively, and both partners receive 10% interest based upon the balance in their capital accounts on January 1. Partners' drawings are not used in determining the average capital balances. Total net income for 2014 is $180,000. If net income after deducting the interest and salary allocations is more than $60,000, Barne receives a bonus of 5% of the original amount of net income.

-If the partnership experiences a net loss of $60,000 for the year,what will be the final net amount of profit or (loss)closed to each partner's capital account?

Accepted Answer

If the partnership experiences a net loss of $60,000, it means that the total capital of the partners will decrease by $60,000. Since the partnership agreement stated that the loss should be shared based on their capital ratio (2:1), Alfred, who has a capital of 2/3 of the total capital, will bear 2/3 of the loss ($40,000), while Barne, who has a capital of 1/3 of the total capital, will bear 1/3 of the loss ($20,000). Therefore, Alfred's capital account will decrease by $30,000 (his initial capital of $70,000 minus his share of the loss of $40,000) and Barne's capital account will also decrease by $30,000 (his initial capital of $30,000 minus his share of the loss of $20,000). Hence, the final net amount of profit or (loss) closed to each partner's capital account will be ($30,000) to Alfred and ($30,000) to Barne.

Question 15

Use the following information to answer the question(s) below.

Quincy has decided to retire from the partnership of Quincy, Robert, and Sam. The partnership will pay Quincy $400,000. Total partnership capital should be revalued based on the excess payment to Quincy. (Assume the book values of the assets listed below equals fair values.) A summary balance sheet for the Quincy, Robert, and Sam partnership appears below. Quincy, Robert, and Sam share profits and losses in a ratio of 1:1:3, respectively.

-What goodwill will be recorded?

Accepted Answer

The answer of Use the following information to answer the...

Question 16

In a limited partnership,a general partner

Accepted Answer

In a limited partnership, the general partner has unlimited liability for partnership debt, meaning they can be held personally responsible for any debts or legal obligations incurred by the partnership. This is in contrast to limited partners, who have limited liability and are not personally responsible for the partnership's debts beyond their initial investment. Additionally, as a general partner, they typically have more involvement in the management and decision-making of the business compared to limited partners. Therefore, choice D is the correct answer.

Question 17

Use the following information to answer the question(s) below.

Bertram and Ernest share profits and losses equally after salary and interest allowances. Bertram and Ernest receive salary allowances of $40,000 and $60,000, respectively, and both partners receive 10% interest on their average capital balances. Average capital balances are calculated at the beginning of each month, regardless of when additional capital contributions or permanent withdrawals are made subsequently within the month. Partners' drawings of $3,000 per month are not used in determining the average capital balances. Total net income for 2014 is $240,000.
 Permanent withdrawals of capital:
  Additional investments of capital:
 
-What is the weighted-average capital for Bertram and Ernest in 2014?

Accepted Answer

The answer of Use the following information to answer the...

Question 18

Use the following information to answer the question(s) below.

Alfred and Barne share profits and losses in a ratio of 2:3, respectively, after salary allowances, interest allowances and bonus allocations. Alfred and Barne receive salary allowances of $30,000 and $60,000, respectively, and both partners receive 10% interest based upon the balance in their capital accounts on January 1. Partners' drawings are not used in determining the average capital balances. Total net income for 2014 is $180,000. If net income after deducting the interest and salary allocations is more than $60,000, Barne receives a bonus of 5% of the original amount of net income.

-What is the total amount for the allocation of interest,salary,and bonus,and how much over-allocation is present?

Accepted Answer

The answer of Use the following information to answer the...

Question 19

Use the following information to answer the question(s) below.

Quincy has decided to retire from the partnership of Quincy, Robert, and Sam. The partnership will pay Quincy $400,000. Total partnership capital should be revalued based on the excess payment to Quincy. (Assume the book values of the assets listed below equals fair values.) A summary balance sheet for the Quincy, Robert, and Sam partnership appears below. Quincy, Robert, and Sam share profits and losses in a ratio of 1:1:3, respectively.

-What partnership capital will Robert have after Quincy retires?

Accepted Answer

The total partnership capital is given to be $600,000. Robert currently has 40% share and Quincy has 60% share. After Quincy retires, his share will be divided equally among the remaining partners, which means Robert will get an additional 30% share. Therefore, Robert's new share will be 70%. 
Robert's new partnership capital = Total partnership capital * Robert's new share
= $600,000 * 70%
= $420,000
But it is given that Robert will pay $60,000 to Quincy for his share, which means this amount will be deducted from Robert's new partnership capital.
Therefore, Robert's final partnership capital will be:
= $420,000 - $60,000
= $360,000.

Question 20

Drawings

Accepted Answer

Drawings refer to the amounts withdrawn by partners from their partnership account, which reduces their share of capital in the partnership. Therefore, they are of the same nature as withdrawals.

Quiz 16: Partnerships - Formation,operations,and Changes in Ownership Interests

Which of the following is a reason to use a partnership as the legal form of a business?

Under the Uniform Partnership Act,loans made by a partner to the partnership are treated as

Austin contributes his computer equipment to the landscaping partnership he starts with Bentley.At what amount should the computer equipment be credited to Austin's partnership capital?

If the partnership agreement provides a formula for the computation of a bonus to the partners,the bonus would be computed

In the Uniform Partnership Act,partners have

The XYZ partnership provides a 10% bonus to Partner Y that is based upon partnership income,after deduction of the bonus.If the partnership's income is $140,000,how much is Partner Y's bonus allocation?

Partnerships

A partner assigned his partnership interest to a third party.Which statement best describes the legal ramifications to the assignee?

In a limited partnership,a general partner

Drawings