Question 1

Alex,Clinton,and Evan are in a partnership.Evan decides to withdraw from the partnership by selling his interest to Linsey.Alex and Clinton agree to this.Alex's Capital account and Clinton's Capital account
A)will not be affected when Linsey is admitted.
B)will decrease when Linsey is admitted.
C)will increase when Linsey is admitted.
D)cannot be determined from the information given.

Accepted Answer

When Linsey is admitted into the partnership by purchasing Evan's interest, Alex's and Clinton's capital accounts remain unaffected. The transaction involves Evan and Linsey, changing only the ownership of Evan's portion to Linsey.

Question 2

Which of the following methods of distributing income cannot be accomplished (cannot stand alone)?
A)Capital balance ratio alone
B)Interest and stated ratio alone
C)Stated ratio alone
D)Salary alone

Accepted Answer

Salary alone cannot be used to distribute income as it does not account for the remaining income after salaries are paid. Other methods like capital balance ratio, interest and stated ratio, or stated ratio alone can stand alone as they provide a complete basis for income distribution.

Question 3

Which of the following statements is correct regarding partnerships?
A)Accounting for a partnership is similar to accounting for a corporation.
B)If the partnership assumes a liability related to an asset invested in the partnership,the partner's capital account is credited and a liability account is debited.
C)It is necessary to maintain separate Capital and Withdrawals accounts for each partner.
D)All of these choices.

Accepted Answer

Partnerships require maintaining separate Capital and Withdrawals accounts for each partner to accurately track each partner's investment, share of profits or losses, and withdrawals from the partnership. This is essential for the equitable management of the partnership and for providing clear financial statements related to each partner's contributions and distributions.

Question 4

Which of the following is incorrect regarding partnerships?
A)Legally,there is no economic separation between a partnership and its owners.
B)A partnership is a voluntary association of individuals.
C)If the partnership agreement does not describe the method of income distribution,the partners must share income equally.
D)When individuals invest property in a partnership,they co-own the property with the partnership.

Accepted Answer

In a partnership, when individuals invest property, the property becomes owned by the partnership as an entity, not co-owned by the individuals with the partnership. This is because the partnership itself, while not a separate legal entity from its owners for tax purposes, holds the property in the name of the partnership business.

Question 5

Which of the following statements is correct regarding partnerships?
A)Accounting for a partnership is similar to accounting for a sole proprietorship.
B)If the partnership assumes a liability related to an asset invested in the partnership,the asset is debited,the partner's capital account is credited and a liability account is credited.
C)It is necessary to maintain separate Capital and Withdrawals accounts for each partner.
D)All of these choices.

Accepted Answer

A) Accounting for a partnership is similar to accounting for a sole proprietorship as both are flow-through entities.
B) If the partnership assumes a liability related to an asset invested in the partnership, the asset is debited, the partner's capital account is credited, and a liability account is credited, as it represents the partner's share of the asset.
C) It is necessary to maintain separate Capital and Withdrawals accounts for each partner to keep track of each partner's investment and withdrawals from the partnership. 
Therefore, all the choices are correct.

Question 6

Which of the following will not result in dissolution of a partnership?
A)Withdrawal of a partner.
B)Negative capital balance of a partner.
C)Death of a partner.
D)Admission of a new partner.

Accepted Answer

While withdrawal of a partner, death of a partner, or admission of a new partner can result in dissolution of a partnership, a negative capital balance of a partner alone will not necessarily lead to dissolution. The remaining partners may choose to continue the business with the understanding that the partner with the negative capital balance will bear the deficit or come up with a plan to address the deficit.

Question 7

A partner invests into a partnership a building with a $50,000 carrying value and $40,000 fair market value.The related mortgage payable of $25,000 is assumed by the partnership.The entry to record the investment in partnership is:
A)
B)
C)
D)

Accepted Answer

The partnership is receiving a building worth $40,000 and assuming a mortgage payable of $25,000, therefore the initial investment in the partnership is $65,000 ($40,000 + $25,000). The carrying value of the building is not relevant for this transaction. Therefore, the entry to record the investment in partnership is to debit the Building account for $40,000, debit the Mortgage Payable account for $25,000, and credit the Partner's Capital account for $65,000. Option B correctly reflects this entry.

Question 8

A partner invests into a partnership a building with a $50,000 carrying value and $80,000 fair market value.The related mortgage payable of $25,000 is not assumed by the partnership.The entry to record the investment in partnership is:
A)
B)
C)
D)

Accepted Answer

The partnership is receiving an investment with a carrying value of $50,000 and fair market value of $80,000. Since the mortgage payable is not assumed by the partnership, the total investment amount is $80,000. Therefore, the entry to record the investment in partnership is debit "Building" for $80,000 and credit "Partner's Capital" for $80,000. Choice B reflects this entry.

Question 9

Chad invests $20,000 for a one-third interest in a partnership in which the other partners have capital totaling $52,000 before admitting Chad.After distribution of the bonus,what is Chad's capital?
A)$10,666
B)$17,334
C)$20,000
D)$24,000

Accepted Answer

Before Chad joins the partnership, the total capital of the other partners is $52,000.
If Chad invests $20,000 and gets a one-third interest, then the total capital of the partnership at the beginning is:
$20,000 / (1/3) = $60,000

After the bonus, the total capital is:
$60,000 + $6,000 = $66,000

Chad's capital is one-third of this total:
$66,000 / 3 = $22,000

However, Chad originally invested $20,000, so he also receives a return of capital of $2,000:
$22,000 - $20,000 = $2,000

Therefore, Chad's final capital is:
$20,000 (original investment) + $2,000 (return of capital) = $22,000

None of the given answer choices match the answer we found, so the closest answer is D) $24,000.

Question 10

Joan contributes cash of $48,000,and Jamie contributes office equipment that cost $40,000 but is valued at $32,000 to the formation of a new partnership.The entry to record the investments in the partnership is:
A)
B)
C)
D)

Accepted Answer

The entry to record Joan's cash contribution is to debit Cash for $48,000, and credit Joan's Capital account for $48,000. The entry to record Jamie's contribution is to debit Office Equipment for $32,000 (fair market value), debit Loss on Valuation for $8,000 ($40,000 cost - $32,000 fair market value), and credit Jamie's Capital account for $40,000. Therefore, the entry to record the investments in the partnership is:

Debit Cash $48,000
Debit Office Equipment $32,000
Debit Loss on Valuation $8,000
Credit Joan's Capital $48,000
Credit Jamie's Capital $40,000

This is the entry shown in option B.

Question 11

Sara invests $120,000 for a 30 percent interest in a partnership in which the other partners have capital totaling $200,000 before admitting Sara.After distribution of the bonus,what is Sara's capital balance?
A)$60,000
B)$96,000
C)$120,000
D)$144,000

Accepted Answer

The answer of Sara invests $120,000 for a 30 percent...

Question 12

Joan pays Eva $60,000 for her $40,000 interest in a partnership.The entry to record the sale on the partnership books is:
A)
B)
C)
D)

Accepted Answer

The answer of Joan pays Eva $60,000 for her $40,000...

Question 13

Cortney invests $80,000 for a 10 percent interest in a partnership that has total capital of $600,000 after admitting Cortney.Which of the following is true?
A)Cortney's capital is $52,000
B)The original partners' capital in the business was $540,000 before admitting Cortney
C)Cortney received a bonus of $20,000
D)The original partners received a bonus of $20,000

Accepted Answer

The answer of Cortney invests $80,000 for a 10 percent...

Question 14

A partner invests into a partnership a building with a $50,000 carrying value and $80,000 fair market value.The related mortgage payable of $25,000 is assumed by the partnership.The entry to record the investment in partnership is:
A)
B)
C)
D)

Accepted Answer

To record the investment in partnership, we need to debit the Partnership's Building account for its fair market value of $80,000 and credit the Partner's Capital account for $80,000.

The entry should be:

Building ........................$80,000
Partner's Capital ..............$80,000

Since the building's carrying value is $50,000 and its fair market value is $80,000, we have a gain of $30,000 ($80,000 - $50,000). However, this gain is not recognized because the partnership is a separate legal entity and we are recording the investment of the partner, not the gain or loss resulting from the transaction.

Therefore, the correct answer is B.

Question 15

Noncash assets invested into a partnership are recorded at
A)their fair market value.
B)their carrying value.
C)zero.
D)their original cost.

Accepted Answer

Noncash assets invested into a partnership should be recorded at their fair market value at the time of contribution. This is because the partnership is essentially receiving these assets as payment for the partner's ownership interest in the business, and the fair market value represents the value of the partner's contribution. Recording the assets at their original cost or carrying value would not accurately reflect their current value or the partner's investment in the partnership. Zero is not a valid option since the partner is contributing assets of value to the partnership.

Question 16

When a partner invests assets other than cash into a partnership,those assets should be listed on the balance sheet at
A)their original cost.
B)their carrying (book)value.
C)their fair market value.
D)the value the investing partner assigns to them.

Accepted Answer

When a partner invests assets other than cash, they should be listed on the balance sheet at their fair market value. This is because the fair market value represents the most accurate representation of the asset's worth and is the value that a willing buyer would pay for the asset. Using the original cost or carrying value may not accurately reflect the asset's true value and could distort the partnership's financial statements. Similarly, using the value assigned by the investing partner could lead to conflicts of interest and inconsistent valuations. Therefore, fair market value is the best choice for listing non-cash assets on the balance sheet.

Question 17

Which of the following will not result in dissolution of a partnership?
A)Death of a partner
B)Withdrawal of a partner
C)Admission of a new partner
D)Sale of partnership assets

Accepted Answer

The sale of partnership assets does not necessarily lead to the dissolution of a partnership. However, it may have an impact on the partnership's operations and profits. Death, withdrawal, and admission of a partner are events that may lead to the dissolution of a partnership.

Question 18

Partners A and B receive a salary of $16,000 and $14,000,respectively.They agree to share income equally.If the partnership has income of $280,000 in 20x5,the entry to close the income into their capital accounts is:
A)
B)
C)
D)

Accepted Answer

The answer of Partners A and B receive a salary...

Question 19

Lexi invests $80,000 for a one-fourth interest in a partnership in which the other partners have capital totaling $160,000 before admitting Lexi.After distribution of the bonus,what is Lexi's capital balance?
A)$20,000
B)$40,000
C)$60,000
D)$80,000

Accepted Answer

Before admitting Lexi, the total capital of the partnership is $160,000. Since Lexi invests $80,000 for a one-fourth interest in the partnership, it means that the total value of the partnership is four times her investment, or $320,000 (4 x $80,000).

After distribution of the bonus, we are not given any information about the bonus or how it affects the capital balances of the partners. Therefore, we can assume that Lexi's capital balance remains the same. Since she invested $80,000 for a one-fourth interest, her capital balance should be one-fourth of the total value of the partnership, or $80,000 (1/4 x $320,000).

Therefore, Lexi's capital balance is $80,000. However, this answer is not given as one of the choices. The closest choice is C, $60,000. This may be a result of a calculation error or a typo. However, based on the information given, the correct answer should be $80,000.

Question 20

The division of partnership profits on the basis of salaries,interest,and a stated ratio is usually necessary because
A)partners seldom contribute time,effort,and resources equally.
B)this prevents arguments among the partners.
C)this reflects the amount of time devoted to the partnership by the partners.
D)most states require this method of distribution.

Accepted Answer

Partners may contribute different amounts of time, effort, and resources to the partnership, and it would be unfair to distribute profits equally without taking these factors into consideration. Therefore, dividing profits on the basis of salaries, interest, and a stated ratio is necessary to ensure that each partner receives a fair share based on their contributions. It also helps to prevent disputes among the partners about the division of profits. While some states may require this method of distribution, it is not the primary reason why it is necessary for partnership profits to be divided in this way.

Quiz 27: Accounting for Unincorporated Businesses

Alex,Clinton,and Evan are in a partnership.Evan decides to withdraw from the partnership by selling his interest to Linsey.Alex and Clinton agree to this.Alex's Capital account and Clinton's Capital account

Which of the following methods of distributing income cannot be accomplished (cannot stand alone) ?

Which of the following statements is correct regarding partnerships?

Which of the following is incorrect regarding partnerships?

Which of the following statements is correct regarding partnerships?

Which of the following will not result in dissolution of a partnership?

A partner invests into a partnership a building with a $50,000 carrying value and $40,000 fair market value.The related mortgage payable of $25,000 is assumed by the partnership.The entry to record the investment in partnership is:

A partner invests into a partnership a building with a $50,000 carrying value and $80,000 fair market value.The related mortgage payable of $25,000 is not assumed by the partnership.The entry to record the investment in partnership is:

Chad invests $20,000 for a one-third interest in a partnership in which the other partners have capital totaling $52,000 before admitting Chad.After distribution of the bonus,what is Chad's capital?

Joan contributes cash of $48,000,and Jamie contributes office equipment that cost $40,000 but is valued at $32,000 to the formation of a new partnership.The entry to record the investments in the partnership is:

Sara invests $120,000 for a 30 percent interest in a partnership in which the other partners have capital totaling $200,000 before admitting Sara.After distribution of the bonus,what is Sara's capital balance?

Joan pays Eva $60,000 for her $40,000 interest in a partnership.The entry to record the sale on the partnership books is:

Cortney invests $80,000 for a 10 percent interest in a partnership that has total capital of $600,000 after admitting Cortney.Which of the following is true?

A partner invests into a partnership a building with a $50,000 carrying value and $80,000 fair market value.The related mortgage payable of $25,000 is assumed by the partnership.The entry to record the investment in partnership is:

Noncash assets invested into a partnership are recorded at

When a partner invests assets other than cash into a partnership,those assets should be listed on the balance sheet at

Which of the following will not result in dissolution of a partnership?

Partners A and B receive a salary of $16,000 and $14,000,respectively.They agree to share income equally.If the partnership has income of $280,000 in 20x5,the entry to close the income into their capital accounts is:

Lexi invests $80,000 for a one-fourth interest in a partnership in which the other partners have capital totaling $160,000 before admitting Lexi.After distribution of the bonus,what is Lexi's capital balance?

The division of partnership profits on the basis of salaries,interest,and a stated ratio is usually necessary because