Question 1

Raul and Bianca are partners. Raul has a capital balance of $50,000 and Bianca has a capital balance of $36,000. Bianca sells half of her ownership interest to Bill and Bianca accepts $20,000 from Bill. Which of the following is true of the journal entry to record this transaction?

Accepted Answer

When Bianca sells half of her ownership interest to Bill, her capital balance will decrease by $18,000 (half of her previous balance of $36,000). Therefore, the entry will be a debit to Bianca, Capital for $18,000. Bill is buying half of Bianca's ownership interest, so he will be credited for the amount paid, which is $20,000. However, the extra $2,000 cannot be debited to Raul, as he is not involved in this transaction. Therefore, the answer is C, as it reflects the correct debit and credit to reflect the transaction.

Question 2

Anna and Naomi are partners. Anna has a capital balance of $50,000 and Naomi has a capital balance of $40,000. Gary invested $30,000 to acquire an ownership interest of $20,000. 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

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Question 3

Dominic and Morgan are partners. Dominic has a capital balance of $350,000 and Morgan has a capital balance of $245,000. Morgan sells $105,000 of his ownership to Lance. Which of the following is true of the items in balance sheet?

Accepted Answer

When Morgan sells $105,000 of his ownership to Lance, Morgan's capital balance decreases by $105,000 and Lance becomes a new partner with a capital balance of $105,000. Therefore, the total equity remains unchanged because the decrease in Morgan's capital balance is offset by Lance's new capital balance. The assets and liabilities of the partnership are not affected by this transaction.

Question 4

Which of the following is true when a new partner is admitted by purchasing an existing partner's interest?

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Question 5

Keith and Jim are partners. Keith has a capital balance of $50,000 and Jim has a capital balance of $35,000. Jim sells $15,000 of his ownership to Bill. Which of the following is true of the journal entry to admit Bill?

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Question 6

Keith and Jim are partners. Keith has a capital balance of $50,000 and Jim has a capital balance of $40,000. Bill invested $30,000 to acquire an ownership interest of 30%. Which of the following statements is true of this transaction?

Accepted Answer

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Question 7

Which of the following is true of ownership changes in a partnership?

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Question 8

Floyd and Merriam start a partnership business on June 12, 2019. Their capital account balances as of December 31, 2020 stood as follows: $$\begin{array} { | l | r | } 
\hline \text { Floyd } & \$ 50,000 \
\hline \text { Merriam } & 20,000 \
\hline
\end{array}$$ Floyd agrees to sell off half of his share to Ramelow in exchange for $30,000 cash. Which of the following is the correct journal entry in the books of the firm for the above transfer of interest?

Accepted Answer

Floyd sells half of his $50,000 share, which is $25,000, to Ramelow. The journal entry reflects a transfer of capital from Floyd to Ramelow without affecting the firm's cash.

Question 9

Floyd and Merriam start a partnership business on June 12, 2019. Their capital account balances as of December 31, 2020 stood as follows: $$\begin{array} { | l | r | } 
\hline \text { Floyd } & \$ 50,000 \
\hline \text { Merriam } & 20,000 \
\hline
\end{array}$$ They agreed to admit Ramelow into the business for a one-third interest in the new partnership. He had to bring in a cash contribution of $20,000 for the same. Which of the following is the correct capital account balance of Ramelow after he enters the business?

Accepted Answer

The total capital in the new partnership after admitting Ramelow will be $50,000 + $20,000 + $20,000 = $90,000.

Since Ramelow is getting a one-third interest in the partnership, his capital share will be one-third of $90,000, which is $30,000.

Therefore, the correct capital account balance of Ramelow after he enters the business is $30,000, which is option B.

Question 10

Keith and Jim are partners. Keith has a capital balance of $50,000 and Jim has a capital balance of $40,000. Bill invested a building worth $30,000 to the partnership for an ownership interest of 20%. How much is the total bonus for the existing partners?

Accepted Answer

First, we need to calculate the total capital balance of the partnership before the addition of Bill's investment:
Total Capital = Keith's capital + Jim's capital
Total Capital = $50,000 + $40,000
Total Capital = $90,000

After Bill's investment, the total capital of the partnership will be:
Total Capital = $90,000 + $30,000
Total Capital = $120,000

Now, we need to calculate the bonus for the existing partners. Since Bill's ownership interest is 20%, it means the existing partners' ownership interest is 80%. Therefore, the bonus for the existing partners will be:
Bonus = Bill's investment / Bill's ownership interest * Existing partners' ownership interest
Bonus = $30,000 / 20% * 80%
Bonus = $30,000 / 0.2 * 0.8
Bonus = $150,000

Since this is the total bonus for both Keith and Jim, we need to divide it equally between them:
Bonus each = Total bonus / Number of partners
Bonus each = $15,000 / 2
Bonus each = $7,500

Therefore, the total bonus for the existing partners is $7,500 each or a total of $15,000. The answer is C.

Question 11

Floyd and Merriam start a partnership business on June 12, 2019. Their capital account balances as of December 31, 2020 stood as follows: $$\begin{array} { | l | r | } 
\hline \text { Floyd } & \$ 50,000 \
\hline \text { Merriam } & 20,000 \
\hline
\end{array}$$ They agreed to admit Ramelow into the business for a one-fifth interest in the new partnership. He had to bring in a cash contribution of $30,000 for the same. Assuming that Floyd and Merriam shared profits and losses in the ratio 3:1 before the admission of Ramelow. Which of the following is the correct journal entry to record the above admission?

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Question 12

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

Total assets will increase by $60,000 (the amount of Carol's investment). 
Total equity will increase by $50,000 (Carol's ownership interest) and $10,000 (the difference between the value of Carol's investment and the ownership interest acquired).
Therefore, both assets and equity will increase.

Question 13

Floyd and Merriam start a partnership business on June 12, 2019. Their capital account balances as of December 31, 2020 stood as follows: $$\begin{array} { | l | r | } 
\hline \text { Floyd } & \$ 50,000 \
\hline \text { Merriam } & 20,000 \
\hline
\end{array}$$ Floyd and Merriam share profits and losses equally. They agreed to dissolve the partnership and start a new one, admitting Ramelow for one-half share in the capital in exchange for land and equipment having a total market value of $70,000. Which of the following is the correct journal entry to record the introduction of Ramelow as a partner?

Accepted Answer

The correct journal entry to record the introduction of Ramelow as a partner is to credit the land and equipment account for its market value of $70,000 and to debit the Ramelow capital account for the same amount. This entry reflects the admission of Ramelow into the partnership in exchange for land and equipment.

Question 14

Floyd and Merriam start a partnership business on June 12, 2019. Their capital account balances as of December 31, 2020 stood as follows: $$\begin{array} { | l | r | } 
\hline \text { Floyd } & \$ 50,000 \
\hline \text { Merriam } & 20,000 \
\hline
\end{array}$$ They agreed to admit Ramelow into the business for a one-third interest in the new partnership. He had to bring in a cash contribution of $20,000 for the same. Assuming that Floyd and Merriam shared profits and losses equally before the admission of Ramelow. Which of the following is the correct journal entry to record the above admission?

Accepted Answer

Before the admission of Ramelow, Floyd and Merriam shared profits and losses equally. This implies that they divided their capital in the ratio of 1:1.

Floyd's capital balance = $50,000
Merriam's capital balance = $20,000

Total Capital = $70,000

Ratio of Floyd and Merriam's capital = 50,000 : 20,000 = 5 : 2

Since Ramelow is to be admitted for a one-third interest in the new partnership, his share of capital will be 1/3 of the total capital.

Ramelow's capital = (1/3) x $90,000 = $30,000

To calculate the journal entry for Ramelow's admission, we need to reduce Floyd and Merriam's capital to their agreed upon ratio of 5:2 and credit Ramelow's capital account with his contribution of $20,000 and his share of the profits.

In Choice B, Cash is debited for the amount of Ramelow's contribution, Floyd and Merriam's capital accounts are reduced according to their new ratio, and Ramelow's capital account is credited for his contribution and his share of the profits. This is the correct journal entry to record Ramelow's admission.

Question 15

Rex and Sandy are partners. Rex has a capital balance of $350,000 and Sandy has a capital balance of $280,000. Marcus invests a building worth $210,000 to acquire interest in the new partnership. How much will be the partnership share of Marcus after he makes the investment? (Assume no bonus to any partner.)

Accepted Answer

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Question 16

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

When Bill invests $15,000 to acquire 30% ownership interest, the total value of the partnership increases by $50,000 ($15,000/0.3). This means that both the assets and the equity will increase by $50,000.

The new capital balances for Isaac and Karl will be:

Isaac: $25,000 + ($50,000*0.7) = $60,000
Karl: $20,000 + ($50,000*0.3) = $35,000

The total capital balance for the partnership will now be $95,000 ($60,000 + $35,000). This means that the assets will increase by $50,000, and the equity (capital) will increase by $50,000. Therefore, the correct answer is C.

Question 17

Shaun and Rick are partners. Shaun has a capital balance of $10,000 and Rick has a capital balance of $8,000. Edwin invests a building with a current market value of $6,000 to acquire an interest in the new partnership. Which of the following is true of the effect of the transaction on the balance sheet? (Assume no bonus to any partner.)

Accepted Answer

When Edwin invests the building, the assets of the partnership increase by $6,000 due to the addition of the building. The equity of the partnership also increases by $6,000 because Edwin's contribution becomes a part of the capital balance of the partnership. Therefore, both assets and equity will increase by $6,000. There is no mention of any liabilities being involved in the transaction, so option B and D can be ruled out. Option C is incorrect as it suggests that both assets and equity will decrease, which is not possible when a new asset is added to the partnership.

Question 18

Frank and Harry are partners. Frank has a capital balance of $50,000 and Harry has a capital balance of $40,000. Bill invested a building worth $30,000 to the partnership for an ownership interest of 20%. Calculate Bill's capital in the new partnership.

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Question 19

Ruby and Anita are partners. Ruby has a capital balance of $250,000 and Anita has a capital balance of $200,000. Denis invests a building with a current market value of $150,000 to acquire an interest in the new partnership. Which of the following is true of the journal entry to record this transaction? (Assume no bonus to any partner.)

Accepted Answer

When Denis invests the building, his capital balance will be credited for the fair market value of the asset he contributed, which is $150,000. No other capital account will be credited because the question stipulates that there will be no bonus to any partner. Thus, only Denis, Capital will be credited for $150,000, and Building will be debited for the same amount.

Question 20

Sarah and Jane formed a partnership with capital of $210,000 and $126,000, respectively. Peter contributed $84,000 to acquire an ownership interest of 14% in the new partnership. How much is the total bonus for the existing partners?

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Quiz 12: Partnerships