Professional Documents
Culture Documents
TB CH14
TB CH14
1. Cherryhill and Hace had been partners for several years, and they decided to admit Quincy to the
partnership. The accountant for the partnership believed that the dissolved partnership and the newly formed
partnership were two separate entities. What method would the accountant have used for recording the
admission of Quincy to the partnership?
A. revalues assets and liabilities and records goodwill to the continuing partner but not to the withdrawing
partner.
B. revalues liabilities but not assets, and no goodwill is recorded.
C. can recognize goodwill but does not revalue assets and liabilities.
D. revalues assets but not liabilities, and records goodwill to the continuing partner but not to the
withdrawing partner.
E. revalues assets and liabilities but does not record goodwill.
3. The disadvantages of the partnership form of business organization, compared to corporations, include
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4. The advantages of the partnership form of business organization, compared to corporations, include
A. single taxation.
B. ease of raising capital.
C. mutual agency.
D. limited liability.
E. difficulty of formation.
5. The dissolution of a partnership occurs
A. only when the partnership sells its assets and permanently closes its books.
B. only when a partner leaves the partnership.
C. at the end of each year, when income is allocated to the partners.
D. only when a new partner is admitted to the partnership.
E. when there is any change in the individuals who make up the partnership.
6. The partnership of Clapton, Seidel, and Thomas was insolvent and will be unable to pay $30,000 in
liabilities currently due. What recourse was available to the partnership's creditors?
A. $63,000.
B. $53,000.
C. $58,000.
D. $29,000.
E. $51,000.
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8. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
A. $63,000.
B. $53,000.
C. $58,000.
D. $29,000.
E. $51,000.
9. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
A. $63,000.
B. $53,000.
C. $58,000.
D. $29,000.
E. $51,000.
10. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
A. $200,000.
B. $224,000.
C. $238,000.
D. $246,000.
E. $254,000.
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11. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
A. $150,000.
B. $160,000.
C. $165,000.
D. $213,000.
E. $201,000.
12. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
A. $100,000.
B. $117,000.
C. $119,000.
D. $129,000.
E. $153,000.
13. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
What was the total capital balance for the partnership at December 31, 2012?
A. $600,000
B. $564,000
C. $535,000
D. $523,000
E. $545,000
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14. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
A. $17,600
B. $18,800
C. $20,100
D. $17,800
E. $30,100
15. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
A. $34,420.
B. $75,540.
C. $65,540.
D. $70,040.
E. $61,420.
16. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
What was the remainder portion of net income allocated to Nolan for 2013?
A. $45,440
B. $58,040
C. $70,040
D. $72,000
E. $82,040
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17. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
A. $34,420.
B. $75,540.
C. $65,540.
D. $70,040.
E. $61,420.
18. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
A. $34,420.
B. $75,540.
C. $65,540.
D. $70,040.
E. $61,420.
19. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
A. $139,420.
B. $246,000.
C. $276,540.
D. $279,440.
E. $304,040.
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20. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
A. $201,000.
B. $263,520.
C. $264,540.
D. $304,040.
E. $313,780.
21. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
A. $163,420.
B. $151,420.
C. $139,420.
D. $100,000.
E. $142,000.
22. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
What was the total capital balance for the partnership at December 31, 2013?
A. $852,000
B. $780,000
C. $708,000
D. $744,000
E. $594,000
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23. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every
month during 2012 and 2013.
A. $15,142
B. $13,942
C. $12,942
D. $14,142
E. $10,000
24. Jell and Dell were partners with capital balances of $600 and $800 and an income sharing ratio of 2:3. They
admitted Zell to a 30% interest in the partnership, and the total amount of goodwill credited to the original
partners was $700. What amount did Zell contribute to the business?
A. $900.
B. $560.
C. $600.
D. $590.
E. $630.
25. Jerry, a partner in the JSK partnership, begins the year on January 1, 2013 with a capital balance of $20,000.
The JSK partnership agreement states that Jerry receives 6% interest on this weighted average capital
balance.
• On March 1, 2013, when the partnership tax return for 2012 was completed, Jerry's capital account was
credited for his share of 2012 profit of $120,000.
• Jerry withdrew $5,000 quarterly, beginning March 31st.
• On September 1, Jerry's capital account was credited with a special bonus of $60,000 for business he
brought to the partnership.
What amount of interest will be attributed to Jerry for year 2013 that will go toward his profit distribution
for the year? (Use a 360-day year for calculations.)
A. $5,250
B. $6,000
C. $6,400
D. $7,000
E. $7,200
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26. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the
year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was Young's total share of net loss for the first year?
A. $3,900 loss.
B. $11,700 loss.
C. $10,400 loss.
D. $24,700 loss.
E. $9,100 loss.
27. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the
year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was Eaton's total share of net loss for the first year?
A. $3,900 loss.
B. $11,700 loss.
C. $10,400 loss.
D. $24,700 loss.
E. $9,100 loss.
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28. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the
year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was Thurman's total share of net loss for the first year?
A. $3,900 loss.
B. $11,700 loss.
C. $10,400 loss.
D. $24,700 loss.
E. $9,100 loss.
29. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the
year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was the balance in Young's Capital account at the end of the first year?
A. $120,900.
B. $118,300.
C. $126,100.
D. $80,600.
E. $111,500.
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30. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the
year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was the balance in Eaton's Capital account at the end of the first year?
A. $120,900.
B. $118,300.
C. $126,100.
D. $80,600.
E. $111,500.
31. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the
year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was the balance in Thurman's Capital account at the end of the first year?
A. $120,900.
B. $118,300.
C. $126,100.
D. $80,600.
E. $111,500.
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32. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the
year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was Young's total share of net income for the second year?
A. $17,160 income.
B. $4,160 income.
C. $19,760 income.
D. $17,290 income.
E. $28,080 income.
33. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the
year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was Eaton's total share of net income for the second year?
A. $17,160 income.
B. $4,160 income.
C. $19,760 income.
D. $17,290 income.
E. $28,080 income.
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34. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the
year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was Thurman's total share of net income for the second year?
A. $17,160 income.
B. $4,160 income.
C. $19,760 income.
D. $17,290 income.
E. $28,080 income.
35. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the
year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was the balance in Young's Capital account at the end of the second year?
A. $133,380.
B. $84,760.
C. $105,690.
D. $132,860.
E. $71,760.
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36. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the
year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was the balance in Eaton's Capital account at the end of the second year?
A. $133,380.
B. $84,760.
C. $105,690.
D. $132,860.
E. $71,760.
37. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the
year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was the balance in Thurman's Capital account at the end of the second year?
A. $133,380.
B. $84,760.
C. $105,690.
D. $132,860.
E. $71,760.
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38. Which of the following is not a characteristic of a partnership?
A. General Partnership.
B. Limited Partnership.
C. Subchapter S Partnership.
D. Limited Liability Partnership.
E. Limited Liability Company.
40. Which of the following type of organization is classified as a partnership, or similar to a partnership, for tax
purposes?
A. II only.
B. II and III.
C. I and II.
D. I and III.
E. I, II, and III.
41. Which of the following statements is correct regarding the admission of a new partner?
A. A new partner must purchase a partnership interest directly from the business.
B. The right of co-ownership in the business property can be transferred to a new partner without the
consent of other existing partners.
C. The right to participate in management of the business cannot be conveyed without the consent of other
existing partners.
D. The right to share in profits and losses can be sold to a new partner without the consent of other existing
partners.
E. A new partner always pays book value.
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42. Withdrawals from the partnership capital accounts are typically not used
A. $28,800.
B. $33,600.
C. $34,560.
D. $35,520.
E. $38,400.
44. The partners of Apple, Bere, and Carroll LLP share net income and losses in a 5:3:2 ratio, respectively. The
capital account balances on January 1, 2013, were as follows:
The carrying amounts of the assets and liabilities of the partnership are the same as their current fair values.
Dorr will be admitted to the partnership with a 20% capital interest and a 20% share of net income and
losses in exchange for a cash investment. The amount of cash that Dorr should invest in the partnership is:
A. $25,000.
B. $30,000.
C. $37,500.
D. $75,000.
E. $90,000.
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45. The appropriate format of the December 31, 2012 closing entry for John & Hope Limited Liability
Partnership, whose two partners had withdrawn their salaries from the partnership during the year is:
A. Option A
B. Option B
C. Option C
D. Option D
E. Option E
46. When Danny withdrew from John, Daniel, Harry, and Danny, LLP, he was paid $80,000, although his
capital account balance was only $60,000. The four partners shared net income and losses equally. The
journal entry to record the effect on John's capital due to Danny's withdrawal would include:
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47. Max, Jones and Waters shared profits and losses 20%, 40%, and 40% respectively and their partnership
capital balance is $10,000, $30,000 and $50,000 respectively. Max has decided to withdraw from the
partnership. An appraisal of the business and its property estimates the fair value to be $200,000. Land with
a book value of $30,000 has a fair value of $45,000. Max has agreed to receive $20,000 in exchange for her
partnership interest after revaluation. At what amount should land be recorded on the partnership books?
A. $20,000.
B. $30,000.
C. $45,000.
D. $50,000.
E. $200,000.
48. The capital account balances for Donald & Hanes LLP on January 1, 2013, were as follows:
Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to
admit May to the partnership with a 35% interest in partnership capital and net income. May invested
$100,000 cash, and no goodwill was recognized.
What is the balance of May's capital account after the new partnership is created?
A. $84,000.
B. $100,000.
C. $140,000.
D. $176,000.
E. $200,000.
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49. The capital account balances for Donald & Hanes LLP on January 1, 2013, were as follows:
Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to
admit May to the partnership with a 35% interest in partnership capital and net income. May invested
$100,000 cash, and no goodwill was recognized.
What is the balance of Donald's capital account after the new partnership is created?
A. $84,000.
B. $100,000.
C. $140,000.
D. $176,000.
E. $200,000.
50. The capital account balances for Donald & Hanes LLP on January 1, 2013, were as follows:
Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to
admit May to the partnership with a 35% interest in partnership capital and net income. May invested
$100,000 cash, and no goodwill was recognized.
What is the balance of Hanes's capital account after the new partnership is created?
A. $84,000.
B. $100,000.
C. $140,000.
D. $176,000.
E. $200,000.
14-19
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51. The capital account balances for Donald & Hanes LLP on January 1, 2013, were as follows:
Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to
admit May to the partnership with a 35% interest in partnership capital and net income. May invested
$100,000 cash, and no goodwill was recognized.
A. $84,000.
B. $140,000.
C. $176,000.
D. $200,000.
E. $400,000.
52. Which of the following could be used as a basis to allocate profits among partners who are active in the
management of the partnership?
1) allocation of salaries.
2) the number of years with the partnership.
3) the amount of time each partner works.
4) the average capital invested.
A. 1 and 2.
B. 1 and 3.
C. 1, 2, and 4.
D. 1, 3, and 4.
E. 1, 2, 3, and 4.
53. P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit
and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20%
interest.
If C is to contribute an amount equal to his book value share of the new partnership, how much should C
contribute?
A. $22,000
B. $20,000
C. $25,000
D. $18,000
E. $10,000
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54. P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit
and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20%
interest.
C contributes $38,000 to the partnership and the bonus method is used. What amount will be credited for C's
beginning capital balance?
A. $20,000
B. $25,000
C. $27,600
D. $32,600
E. $38,000
55. P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit
and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20%
interest.
If C contributes $40,000 to the partnership and the goodwill method is used, what amount will be debited for
goodwill?
A. $15,000
B. $20,000
C. $25,000
D. $28,000
E. $60,000
56. P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit
and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20%
interest.
C contributes $10,000 to the partnership and the goodwill method is used. What will be the result of the
goodwill calculation?
14-21
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57. Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and $60,000, respectively.
The partners share profits and losses 20%, 40%, and 40% respectively.
Roberts retires and is paid $160,000 based on an independent appraisal of the business. If the goodwill
method is used, what is the capital balance of Peter?
A. $20,000.
B. $60,000.
C. $110,000.
D. $120,000.
E. $230,000.
58. Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and $60,000, respectively.
The partners share profits and losses 20%, 40%, and 40% respectively.
Roberts retires and is paid $160,000 based on an independent appraisal of the business. If the goodwill
method is used, what is the capital balance of Dana?
A. $20,000.
B. $60,000.
C. $110,000.
D. $120,000.
E. $230,000.
59. Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and $60,000, respectively.
The partners share profits and losses 20%, 40%, and 40% respectively.
What is the total partnership capital after Roberts retires receiving $160,000 and using the goodwill
method?
A. $290,000.
B. $176,000.
C. $80,000.
D. $120,000.
E. $230,000.
14-22
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60. Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000 respectively.
The partners share profits and losses 20%, 40%, and 40% respectively.
Anne retires and is paid $80,000 based on an independent appraisal of the business. If the goodwill method
is used, what is the capital of the remaining partners?
Anne retires and is paid $80,000 based on the terms of the original partnership agreement. If the bonus
method is used, what is the capital of the remaining partners?
What is the total partnership capital after Anne retires receiving $80,000 and using the bonus method?
A. $70,000.
B. $40,000.
C. $60,000.
D. $80,000.
E. $42,000.
Essay Questions
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63. What is the dissolution of a partnership?
64. By what methods can a person gain admittance to a partnership?
65. What events cause the dissolution of a partnership?
66. For what events or conditions should the Articles of Partnership make provision?
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67. How is accounting for a partnership different from accounting for a corporation?
68. Why are the terms of the Articles of Partnership important to partners?
69. Brown and Green are forming a business as partners. If they do not create a formal written partnership
agreement, what risks are they exposing themselves to?
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70. What theoretical argument could be made against the recognition of goodwill when there is a change in the
ownership of a partnership?
71. Under what circumstances does a partner's balance in his or her capital account have practical consequences
for the partner?
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72. Reed, Sharp, and Tucker were partners with capital account balances of $80,000, $100,000, and $70,000,
respectively. They agreed to admit Upton to the partnership. Upton purchased 30% of each partner's interest,
with payments directly to Reed, Sharp, and Tucker of $32,000, $40,000, and $28,000, respectively. Before
the admission of Upton, the profit and loss sharing ratio was 2:3:2. The partners agreed to use the book
value method to account for the admission of Upton to the partnership.
Required:
Prepare the journal entry to record the admission of Upton to the partnership.
73. Jipsom and Klark were partners with capital account balances of $80,000 and $100,000, respectively.
Looney directly paid $32,000 to Jipsom and $40,000 to Klark for 30% of their interests in the partnership.
Jipsom and Klark shared income in the ratio of 2:3. They believed that revaluation of the partnership was
appropriate when a new partner was admitted.
Required:
Prepare the journal entries to record the admission of Looney to the partnership.
14-27
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74. Norr and Caylor established a partnership on January 1, 2012. Norr invested cash of $100,000 and Caylor
invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000. For both
partners, the beginning capital balance was to equal the initial investment. Norr and Caylor agreed to the
following procedure for sharing profits and losses:
The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month.
For 2012, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400
billable hours. In 2013, the partnership's income was $24,000, and Norr and Caylor worked 800 and 1,200
billable hours respectively. Each partner withdrew $1,000 per month throughout 2012 and 2013.
Determine the amount of net income allocated to each partner for 2012.
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75. Norr and Caylor established a partnership on January 1, 2012. Norr invested cash of $100,000 and Caylor
invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000. For both
partners, the beginning capital balance was to equal the initial investment. Norr and Caylor agreed to the
following procedure for sharing profits and losses:
The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month.
For 2012, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400
billable hours. In 2013, the partnership's income was $24,000, and Norr and Caylor worked 800 and 1,200
billable hours respectively. Each partner withdrew $1,000 per month throughout 2012 and 2013.
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76. Norr and Caylor established a partnership on January 1, 2012. Norr invested cash of $100,000 and Caylor
invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000. For both
partners, the beginning capital balance was to equal the initial investment. Norr and Caylor agreed to the
following procedure for sharing profits and losses:
The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month.
For 2012, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400
billable hours. In 2013, the partnership's income was $24,000, and Norr and Caylor worked 800 and 1,200
billable hours respectively. Each partner withdrew $1,000 per month throughout 2012 and 2013.
Determine the amount of net income allocated to each partner for 2013. (Round all calculations to the
nearest whole dollar).
14-30
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77. Norr and Caylor established a partnership on January 1, 2012. Norr invested cash of $100,000 and Caylor
invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000. For both
partners, the beginning capital balance was to equal the initial investment. Norr and Caylor agreed to the
following procedure for sharing profits and losses:
The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month.
For 2012, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400
billable hours. In 2013, the partnership's income was $24,000, and Norr and Caylor worked 800 and 1,200
billable hours respectively. Each partner withdrew $1,000 per month throughout 2012 and 2013.
Determine the balance in both capital accounts at the end of 2013 to the nearest dollar.
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78. The ABCD Partnership has the following balance sheet at January 1, 2012, prior to the admission of new
partner, Eden.
Eden contributes $49,000 into the partnership for a 25% interest. The four original partners share profits and
losses equally. Using the bonus method, determine the balances for each of the five partners after Eden joins
the partnership.
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79. The ABCD Partnership has the following balance sheet at January 1, 2012, prior to the admission of new
partner, Eden.
Eden contributed $124,000 in cash to the business to receive a 20% interest in the partnership. Goodwill was
to be recorded. The four original partners shared all profits and losses equally. After Eden made his
investment, what were the individual capital balances?
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80. The ABCD Partnership has the following balance sheet at January 1, 2012, prior to the admission of new
partner, Eden.
Eden acquired a 20% interest in the partnership by contributing a total of $71,500 directly to the other four
partners. No goodwill is to be recorded. Profits and losses have previously been split according to the
following percentages: Adams, 15%, Barnes, 35%, Cordas, 30%, and Davis, 20%. After Eden made his
investment, what were the individual capital balances?
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81. The ABCD Partnership has the following balance sheet at January 1, 2012, prior to the admission of new
partner, Eden.
Eden acquired a 20% interest in the partnership by contributing a total of $71,500 directly to the other four
partners. Goodwill is to be recorded. Profits and losses have previously been split according to the following
percentages: Adams, 15%; Barnes, 35%; Cordas, 30%; and Davis, 20%. After Eden made his investment,
what were the individual capital balances?
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82. Assume the partnership of Dean, Hardin, and Roth has been in existence for a number of years. Dean
decides to withdraw from the partnership when the partners' capital balances are as follows:
An appraisal of the business and its property estimates the fair value to be $100,000. Dean has agreed to
receive $64,000 in exchange for his partnership interest.
Prepare the journal entry for the payment to Dean in the dissolution of his partnership interest, assuming the
bonus method is to be applied.
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83. Assume the partnership of Dean, Hardin, and Roth has been in existence for a number of years. Dean
decides to withdraw from the partnership when the partners' capital balances are as follows:
An appraisal of the business and its property estimates the fair value to be $100,000. Dean has agreed to
receive $64,000 in exchange for his partnership interest.
What are the remaining partners' capital balances after Dean's interest is dissolved, assuming the bonus
method is applied?
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84. Assume the partnership of Howell, Madrid, and Waldrop has been in existence for a number of years.
Howell decides to withdraw from the partnership when the partners' capital balances are as follows:
An appraisal of the business and its net assets estimates the fair value to be $154,000. Land with a book
value of $20,000 has a fair value of $35,000. Howell has agreed to receive $84,000 in exchange for her
partnership interest.
Prepare the journal entries for the dissolution of Howell's partnership interest, assuming the goodwill
method is to be applied.
14-38
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85. Assume the partnership of Howell, Madrid, and Waldrop has been in existence for a number of years.
Howell decides to withdraw from the partnership when the partners' capital balances are as follows:
An appraisal of the business and its net assets estimates the fair value to be $154,000. Land with a book
value of $20,000 has a fair value of $35,000. Howell has agreed to receive $84,000 in exchange for her
partnership interest.
What are the remaining partners' capital balances after Howell's interest is dissolved, assuming the goodwill
method is applied?
14-39
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86. On January 1, 2013, Lamb and Mona LLP admitted Noris to a 20% interest in net assets for an investment
of $50,000 cash. Prior to the admission of Noris, Lamb and Mona had net assets of $100,000 and an
income-sharing ratio of 25% to Lamb and 75% to Mona. After the admission of Noris, the partnership
contract included the following provisions:
Record the journal entry for the admission of Noris. Goodwill is not to be recorded.
87. On January 1, 2013, Lamb and Mona LLP admitted Noris to a 20% interest in net assets for an investment
of $50,000 cash. Prior to the admission of Noris, Lamb and Mona had net assets of $100,000 and an
income-sharing ratio of 25% to Lamb and 75% to Mona. After the admission of Noris, the partnership
contract included the following provisions:
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88. On January 1, 2013, Lamb and Mona LLP admitted Noris to a 20% interest in net assets for an investment
of $50,000 cash. Prior to the admission of Noris, Lamb and Mona had net assets of $100,000 and an
income-sharing ratio of 25% to Lamb and 75% to Mona. After the admission of Noris, the partnership
contract included the following provisions:
Record the journal entry to record the remainder of net income to the capital accounts.
89. James, Keller, and Rivers have the following capital balances; $48,000, $70,000 and $90,000 respectively.
Because of a cash shortage James invests an additional $12,000 on June 1st. Each partner withdraws $1,000
per month. James, Keller, and Rivers receive a salary of $13,000, $15,000 and $20,000, respectively, for
work done during the year. Each partner receives interest of 8% on their weighted average capital balance
without regard to normal drawings. Any remaining profits are split 20%, 30%, and 50% respectively. The
net income for the year is $30,000. What are the ending capital balances for each partner?
14-41
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Chapter 14 Partnerships: Formation and Operation Answer Key
1. Cherryhill and Hace had been partners for several years, and they decided to admit Quincy to the
partnership. The accountant for the partnership believed that the dissolved partnership and the newly
formed partnership were two separate entities. What method would the accountant have used for
recording the admission of Quincy to the partnership?
A. revalues assets and liabilities and records goodwill to the continuing partner but not to the
withdrawing partner.
B. revalues liabilities but not assets, and no goodwill is recorded.
C. can recognize goodwill but does not revalue assets and liabilities.
D. revalues assets but not liabilities, and records goodwill to the continuing partner but not to the
withdrawing partner.
E. revalues assets and liabilities but does not record goodwill.
AACSB: Reflective thinking
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-07 Explain the meaning of partnership dissolution and understand that a dissolution will often have little or no effect
on the operations of the partnership business.
Topic: Accounting for Partnership Dissolution
14-42
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3. The disadvantages of the partnership form of business organization, compared to corporations, include
A. only when the partnership sells its assets and permanently closes its books.
B. only when a partner leaves the partnership.
C. at the end of each year, when income is allocated to the partners.
D. only when a new partner is admitted to the partnership.
E. when there is any change in the individuals who make up the partnership.
AACSB: Reflective thinking
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-07 Explain the meaning of partnership dissolution and understand that a dissolution will often have little or no effect
on the operations of the partnership business.
Topic: Accounting for Partnership Dissolution
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6. The partnership of Clapton, Seidel, and Thomas was insolvent and will be unable to pay $30,000 in
liabilities currently due. What recourse was available to the partnership's creditors?
A. they must present equal claims to the three partners as individuals.
B. they must try obtain a payment from the partner with the largest capital account balance.
C. they cannot seek remuneration from the partners as individuals.
D. they may seek remuneration from any partner they choose.
E. they must present their claims to the three partners in the order of the partners' capital account
balances.
AACSB: Reflective thinking
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 14-01 Explain the advantages and disadvantages of the partnership versus the corporate form of business.
Topic: Partnerships - Advantages and Disadvantages
7. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
A. $63,000.
B. $53,000.
C. $58,000.
D. $29,000.
E. $51,000.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
14-44
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8. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
A. $63,000.
B. $53,000.
C. $58,000.
D. $29,000.
E. $51,000.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
9. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
A. $63,000.
B. $53,000.
C. $58,000.
D. $29,000.
E. $51,000.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
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McGraw-Hill Education.
Difficulty: 1 Easy
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
10. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
A. $200,000.
B. $224,000.
C. $238,000.
D. $246,000.
E. $254,000.
Beginning $200,000 + Interest $20,000 + Salary $0 + Remainder (40%) $38,000 - Withdrawals $12,000
= $246,000
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
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11. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
A. $150,000.
B. $160,000.
C. $165,000.
D. $213,000.
E. $201,000.
Beginning $150,000 + Interest $15,000 + Salary $10,000 + Remainder (40%) $38,000 - Withdrawals
$12,000 = $201,000
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
12. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
A. $100,000.
B. $117,000.
C. $119,000.
D. $129,000.
E. $153,000.
Beginning $100,000 + Interest $10,000 + Salary $0 + Remainder (20%) $19,000 - Withdrawals $12,000
= $117,000
AACSB: Analytic
14-47
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McGraw-Hill Education.
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
13. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
What was the total capital balance for the partnership at December 31, 2012?
A. $600,000
B. $564,000
C. $535,000
D. $523,000
E. $545,000
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
14-48
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McGraw-Hill Education.
14. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
A. $17,600
B. $18,800
C. $20,100
D. $17,800
E. $30,100
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
15. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
A. $34,420.
B. $75,540.
C. $65,540.
D. $70,040.
E. $61,420.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
14-49
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McGraw-Hill Education.
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
16. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
What was the remainder portion of net income allocated to Nolan for 2013?
A. $45,440
B. $58,040
C. $70,040
D. $72,000
E. $82,040
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
17. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
A. $34,420.
B. $75,540.
C. $65,540.
D. $70,040.
E. $61,420.
AACSB: Analytic
14-50
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of
McGraw-Hill Education.
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
18. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
A. $34,420.
B. $75,540.
C. $65,540.
D. $70,040.
E. $61,420.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
14-51
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McGraw-Hill Education.
19. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
A. $139,420.
B. $246,000.
C. $276,540.
D. $279,440.
E. $304,040.
Beginning $246,000 + Interest $24,600 + Salary $0 + Remainder (40%) $45,440 - Withdrawals $12,000
= $304,040
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
20. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
A. $201,000.
B. $263,520.
C. $264,540.
D. $304,040.
E. $313,780.
Beginning $201,000 + Interest $20,100 + Salary $10,000 + Remainder (40%) $45,440 - Withdrawals
$12,000 = $264,540
AACSB: Analytic
14-52
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McGraw-Hill Education.
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
21. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
A. $163,420.
B. $151,420.
C. $139,420.
D. $100,000.
E. $142,000.
Beginning $117,000 + Interest $11,700 + Salary $0 + Remainder (20%) $22,720 - Withdrawals $12,000
= $139,420
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
14-53
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McGraw-Hill Education.
22. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
What was the total capital balance for the partnership at December 31, 2013?
A. $852,000
B. $780,000
C. $708,000
D. $744,000
E. $594,000
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
23. Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000,
$150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the
beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net
income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use
every month during 2012 and 2013.
A. $15,142
B. $13,942
C. $12,942
D. $14,142
E. $10,000
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
14-54
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McGraw-Hill Education.
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
24. Jell and Dell were partners with capital balances of $600 and $800 and an income sharing ratio of 2:3.
They admitted Zell to a 30% interest in the partnership, and the total amount of goodwill credited to the
original partners was $700. What amount did Zell contribute to the business?
A. $900.
B. $560.
C. $600.
D. $590.
E. $630.
Jell $600 + Dell $800 + Goodwill $700 = $2,100/70% = $3,000 × 30% = $900 Cash
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to the partnership.
Topic: Admission by a Contribution Made to the Partnership
14-55
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25. Jerry, a partner in the JSK partnership, begins the year on January 1, 2013 with a capital balance of
$20,000. The JSK partnership agreement states that Jerry receives 6% interest on this weighted average
capital balance.
• On March 1, 2013, when the partnership tax return for 2012 was completed, Jerry's capital account was
credited for his share of 2012 profit of $120,000.
• Jerry withdrew $5,000 quarterly, beginning March 31st.
• On September 1, Jerry's capital account was credited with a special bonus of $60,000 for business he
brought to the partnership.
What amount of interest will be attributed to Jerry for year 2013 that will go toward his profit
distribution for the year? (Use a 360-day year for calculations.)
A. $5,250
B. $6,000
C. $6,400
D. $7,000
E. $7,200
Beginning Balance $20,000 + Profit $40,000 ($120,000/3) + Bonus $60,000 - Withdrawals $20,000 =
Ending $100,000 × .06 = $6,000
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
14-56
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26. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of
the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was Young's total share of net loss for the first year?
Net Loss ($26,000) - Interest $39,000 - Salaries $39,000 = ($104,000) × 50% = Young's Portion
($52,000) + Interest $14,300 + Salary $26,000 = Young's Share of Loss ($11,700)
AACSB: Analytic
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AICPA FN: Measurement
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
14-57
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McGraw-Hill Education.
27. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of
the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was Eaton's total share of net loss for the first year?
Net Loss ($26,000) - Interest $39,000 - Salaries $39,000 = ($104,000) × 20% = Eaton's Portion
($20,800) + Interest $10,400 + Salary $0 = Eaton's Share of Loss ($10,400)
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
14-58
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McGraw-Hill Education.
28. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of
the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was Thurman's total share of net loss for the first year?
Net Loss ($26,000) - Interest $39,000 - Salaries $39,000 = ($104,000) × 30% = Thurman's Portion
($31,200) + Interest $14,300 + Salary $13,000 = Thurman's Share of Loss ($3,900)
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
14-59
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McGraw-Hill Education.
29. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of
the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was the balance in Young's Capital account at the end of the first year?
A. $120,900.
B. $118,300.
C. $126,100.
D. $80,600.
E. $111,500.
Beginning $143,000 + Interest $14,300 + Salary $26,000 + Remainder (50%) ($52,000) - Withdrawals
$13,000 = Ending Balance $118,300
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
14-60
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McGraw-Hill Education.
30. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of
the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was the balance in Eaton's Capital account at the end of the first year?
A. $120,900.
B. $118,300.
C. $126,100.
D. $80,600.
E. $111,500.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
14-61
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McGraw-Hill Education.
31. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of
the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was the balance in Thurman's Capital account at the end of the first year?
A. $120,900.
B. $118,300.
C. $126,100.
D. $80,600.
E. $111,500.
Beginning $143,000 + Interest $14,300 + Salary $13,000 + Remainder (30%) ($31,200) - Withdrawals
$13,000 = Ending Balance $126,100
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
14-62
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McGraw-Hill Education.
32. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of
the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was Young's total share of net income for the second year?
Net Income $52,000 - Interest $32,500 - Salaries $39,000 = ($19,500) × 50% = Young's Portion ($9,750)
+ Interest $11,830 + Salary $26,000 = Young's Share of Income $28,080
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
14-63
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McGraw-Hill Education.
33. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of
the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was Eaton's total share of net income for the second year?
Net Income $52,000 - Interest $32,500 - Salaries $39,000 = ($19,500) × 20% = Eaton's Portion ($3,900)
+ Interest $8,060 + Salary $0 = Eaton's Share of Income $4,160
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
14-64
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McGraw-Hill Education.
34. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of
the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was Thurman's total share of net income for the second year?
Net Income $52,000 - Interest $32,500 - Salaries $39,000 = ($19,500) × 30% = Thurman's Portion
($5,850) + Interest $12,610 + Salary $13,000 = Thurman's Share of Income $19,760
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
14-65
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McGraw-Hill Education.
35. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of
the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was the balance in Young's Capital account at the end of the second year?
A. $133,380.
B. $84,760.
C. $105,690.
D. $132,860.
E. $71,760.
Beginning $118,300 + Interest $11,830 + Salary $26,000 + Remainder (50%) ($9,750) - Withdrawals
$13,000 = Ending Balance $133,380
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
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36. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of
the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was the balance in Eaton's Capital account at the end of the second year?
A. $133,380.
B. $84,760.
C. $105,690.
D. $132,860.
E. $71,760.
Beginning $80,600 + Interest $8,060 + Salary $0 + Remainder (20%) ($3,900) - Withdrawals $13,000 =
Ending Balance $71,760
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
14-67
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37. A partnership began its first year of operations with the following capital balances:
The Articles of Partnership stipulated that profits and losses be assigned in the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of
the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the
second year.
What was the balance in Thurman's Capital account at the end of the second year?
A. $133,380.
B. $84,760.
C. $105,690.
D. $132,860.
E. $71,760.
Beginning $126,100 + Interest $12,610 + Salary $13,000 + Remainder (30%) ($5,850) - Withdrawals
$13,000 = Ending Balance $132,860
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
38. Which of the following is not a characteristic of a partnership?
14-68
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Difficulty: 1 Easy
Learning Objective: 14-01 Explain the advantages and disadvantages of the partnership versus the corporate form of business.
Topic: Partnerships - Advantages and Disadvantages
39. Partnerships have alternative legal forms including all of the following except:
A. II only.
B. II and III.
C. I and II.
D. I and III.
E. I, II, and III.
AACSB: Reflective thinking
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 14-01 Explain the advantages and disadvantages of the partnership versus the corporate form of business.
Topic: Partnerships - Advantages and Disadvantages
14-69
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41. Which of the following statements is correct regarding the admission of a new partner?
A. A new partner must purchase a partnership interest directly from the business.
B. The right of co-ownership in the business property can be transferred to a new partner without the
consent of other existing partners.
C. The right to participate in management of the business cannot be conveyed without the consent of
other existing partners.
D. The right to share in profits and losses can be sold to a new partner without the consent of other
existing partners.
E. A new partner always pays book value.
AACSB: Reflective thinking
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-03 Prepare the journal entry to record the initial capital investment made by a partner.
Topic: Accounting for Capital Contributions
42. Withdrawals from the partnership capital accounts are typically not used
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43. The partnership contract for Hanes and Jones LLP provides that Hanes is to receive a bonus of 20% of
net income (after the bonus) and that the remaining net income is to be divided equally. If the partnership
income before the bonus for the year is $57,600, Hanes' share of this pre-bonus income is:
A. $28,800.
B. $33,600.
C. $34,560.
D. $35,520.
E. $38,400.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
44. The partners of Apple, Bere, and Carroll LLP share net income and losses in a 5:3:2 ratio, respectively.
The capital account balances on January 1, 2013, were as follows:
The carrying amounts of the assets and liabilities of the partnership are the same as their current fair
values. Dorr will be admitted to the partnership with a 20% capital interest and a 20% share of net
income and losses in exchange for a cash investment. The amount of cash that Dorr should invest in the
partnership is:
A. $25,000.
B. $30,000.
C. $37,500.
D. $75,000.
E. $90,000.
AACSB: Analytic
AICPA BB: Legal
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AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to the partnership.
Topic: Admission by a Contribution Made to the Partnership
45. The appropriate format of the December 31, 2012 closing entry for John & Hope Limited Liability
Partnership, whose two partners had withdrawn their salaries from the partnership during the year is:
A. Option A
B. Option B
C. Option C
D. Option D
E. Option E
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
14-72
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46. When Danny withdrew from John, Daniel, Harry, and Danny, LLP, he was paid $80,000, although his
capital account balance was only $60,000. The four partners shared net income and losses equally. The
journal entry to record the effect on John's capital due to Danny's withdrawal would include:
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
Topic: Dissolution - Withdrawal of a Partner
47. Max, Jones and Waters shared profits and losses 20%, 40%, and 40% respectively and their partnership
capital balance is $10,000, $30,000 and $50,000 respectively. Max has decided to withdraw from the
partnership. An appraisal of the business and its property estimates the fair value to be $200,000. Land
with a book value of $30,000 has a fair value of $45,000. Max has agreed to receive $20,000 in exchange
for her partnership interest after revaluation. At what amount should land be recorded on the partnership
books?
A. $20,000.
B. $30,000.
C. $45,000.
D. $50,000.
E. $200,000.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
Topic: Dissolution - Withdrawal of a Partner
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48. The capital account balances for Donald & Hanes LLP on January 1, 2013, were as follows:
Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to
admit May to the partnership with a 35% interest in partnership capital and net income. May invested
$100,000 cash, and no goodwill was recognized.
What is the balance of May's capital account after the new partnership is created?
A. $84,000.
B. $100,000.
C. $140,000.
D. $176,000.
E. $200,000.
Donald $200,000 + Hanes $100,000 + Cash $100,000 = $400,000 × .35 = $140,000 to May
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to the partnership.
Topic: Admission by a Contribution Made to the Partnership
14-74
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49. The capital account balances for Donald & Hanes LLP on January 1, 2013, were as follows:
Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to
admit May to the partnership with a 35% interest in partnership capital and net income. May invested
$100,000 cash, and no goodwill was recognized.
What is the balance of Donald's capital account after the new partnership is created?
A. $84,000.
B. $100,000.
C. $140,000.
D. $176,000.
E. $200,000.
Bonus to May $40,000 × .60 = $24,000 from Donald's $200,000 = $176,000 New Capital Balance
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to the partnership.
Topic: Admission by a Contribution Made to the Partnership
14-75
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50. The capital account balances for Donald & Hanes LLP on January 1, 2013, were as follows:
Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to
admit May to the partnership with a 35% interest in partnership capital and net income. May invested
$100,000 cash, and no goodwill was recognized.
What is the balance of Hanes's capital account after the new partnership is created?
A. $84,000.
B. $100,000.
C. $140,000.
D. $176,000.
E. $200,000.
Bonus to May $40,000 × .40 = $16,000 from Hanes' $100,000 = $84,000 New Capital Balance
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to the partnership.
Topic: Admission by a Contribution Made to the Partnership
14-76
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51. The capital account balances for Donald & Hanes LLP on January 1, 2013, were as follows:
Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to
admit May to the partnership with a 35% interest in partnership capital and net income. May invested
$100,000 cash, and no goodwill was recognized.
A. $84,000.
B. $140,000.
C. $176,000.
D. $200,000.
E. $400,000.
Donald $176,000 + Hanes $84,000 + May $140,000 = Total Partners Capital $400,000
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to the partnership.
Topic: Admission by a Contribution Made to the Partnership
52. Which of the following could be used as a basis to allocate profits among partners who are active in the
management of the partnership?
1) allocation of salaries.
2) the number of years with the partnership.
3) the amount of time each partner works.
4) the average capital invested.
A. 1 and 2.
B. 1 and 3.
C. 1, 2, and 4.
D. 1, 3, and 4.
E. 1, 2, 3, and 4.
AACSB: Reflective thinking
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
14-77
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balances.
Topic: Allocation of Income
53. P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the
profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for
a 20% interest.
If C is to contribute an amount equal to his book value share of the new partnership, how much should C
contribute?
A. $22,000
B. $20,000
C. $25,000
D. $18,000
E. $10,000
$50,000 + $30,000 + $20,000 = $100,000/80% = $125,000 - Current Capital $100,000 = $25,000 Cash
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to the partnership.
Topic: Admission by a Contribution Made to the Partnership
54. P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the
profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for
a 20% interest.
C contributes $38,000 to the partnership and the bonus method is used. What amount will be credited for
C's beginning capital balance?
A. $20,000
B. $25,000
C. $27,600
D. $32,600
E. $38,000
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to the partnership.
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Topic: Admission by a Contribution Made to the Partnership
55. P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the
profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for
a 20% interest.
If C contributes $40,000 to the partnership and the goodwill method is used, what amount will be debited
for goodwill?
A. $15,000
B. $20,000
C. $25,000
D. $28,000
E. $60,000
$40,000/20% = $200,000 - Current Capital $100,000 - New Cash $40,000 = $60,000 Goodwill
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to the partnership.
Topic: Admission by a Contribution Made to the Partnership
56. P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the
profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for
a 20% interest.
C contributes $10,000 to the partnership and the goodwill method is used. What will be the result of the
goodwill calculation?
$50,000 + $30,000 + $20,000 = $100,000/80% = $125,000 - Current Capital $100,000 = $25,000 Cash is
needed for 20%, $10,000 Cash received, $15,000 Goodwill is Recorded to C's Capital Account
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to the partnership.
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Topic: Admission by a Contribution Made to the Partnership
57. Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and $60,000,
respectively. The partners share profits and losses 20%, 40%, and 40% respectively.
Roberts retires and is paid $160,000 based on an independent appraisal of the business. If the goodwill
method is used, what is the capital balance of Peter?
A. $20,000.
B. $60,000.
C. $110,000.
D. $120,000.
E. $230,000.
Roberts receives an additional $60,000 above her capital balance. Since she is assigned 40 percent of all
profits and losses, this extra allocation indicates total goodwill of $150,000, which must be split among
all partners.
40% of Goodwill = $60,000
.40 G = $60,000
G = $150,000 and Peter receives 20% = $30,000.
Peter's balance = $80,000 + $30,000 = $110,000.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
Topic: Dissolution - Withdrawal of a Partner
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58. Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and $60,000,
respectively. The partners share profits and losses 20%, 40%, and 40% respectively.
Roberts retires and is paid $160,000 based on an independent appraisal of the business. If the goodwill
method is used, what is the capital balance of Dana?
A. $20,000.
B. $60,000.
C. $110,000.
D. $120,000.
E. $230,000.
Roberts receives an additional $60,000 above her capital balance. Since she is assigned 40 percent of all
profits and losses, this extra allocation indicates total goodwill of $150,000, which must be split among
all partners.
40% of Goodwill = $60,000
Goodwill = $150,000
Dana receives 40% = $60,000
Dana's Balance = $60,000 + $60,000 = $120,000
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
Topic: Dissolution - Withdrawal of a Partner
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59. Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and $60,000,
respectively. The partners share profits and losses 20%, 40%, and 40% respectively.
What is the total partnership capital after Roberts retires receiving $160,000 and using the goodwill
method?
A. $290,000.
B. $176,000.
C. $80,000.
D. $120,000.
E. $230,000.
Roberts receives an additional $60,000 above her capital balance. Since she is assigned 40 percent of all
profits and losses, this extra allocation indicates total goodwill of $150,000, which must be split among
all partners.
40% of Goodwill = $60,000
Goodwill = $150,000
Total Capital is $240,000 + Goodwill $150,000 = $390,000
Roberts receives $160,000 and Partnership Capital is then $390,000 - $160,000 = $230,000
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
Topic: Dissolution - Withdrawal of a Partner
14-82
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60. Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000
respectively. The partners share profits and losses 20%, 40%, and 40% respectively.
Anne retires and is paid $80,000 based on an independent appraisal of the business. If the goodwill
method is used, what is the capital of the remaining partners?
Anne receives an additional $30,000 above her capital balance. Since she is assigned 40 percent of all
profits and losses, this extra allocation indicates total goodwill of $75,000, which must be split among all
partners.
40% of Goodwill = $30,000
Goodwill = $75,000
Donald = 20% Goodwill = $15,000 [$40,000 + $15,000] = $55,000
Todd = 40% Goodwill = $30,000 [$30,000 + $30,000] = $60,000
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
Topic: Dissolution - Withdrawal of a Partner
61. Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000
respectively. The partners share profits and losses 20%, 40%, and 40% respectively.
Anne retires and is paid $80,000 based on the terms of the original partnership agreement. If the bonus
method is used, what is the capital of the remaining partners?
The $30,000 bonus is deducted from the remaining partners according to their relative profit and loss
ratio. Donald = 20% and Todd = 40% which is a 1/3, 2/3 split
Donald = $40,000 - (1/3 × $30,000) = $30,000
Todd = $30,000 - (2/3 × $30,000) = $10,000
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
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Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
Topic: Dissolution - Withdrawal of a Partner
62. Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000
respectively. The partners share profits and losses 20%, 40%, and 40% respectively.
What is the total partnership capital after Anne retires receiving $80,000 and using the bonus method?
A. $70,000.
B. $40,000.
C. $60,000.
D. $80,000.
E. $42,000.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Accessibility: Keyboard Navigation
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
Topic: Dissolution - Withdrawal of a Partner
Essay Questions
The dissolution of a partnership is the breakup of the partnership caused by any change in the members
that make up the partnership.
AACSB: Reflective thinking
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-07 Explain the meaning of partnership dissolution and understand that a dissolution will often have little or no effect
on the operations of the partnership business.
Topic: Accounting for Partnership Dissolution
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64. By what methods can a person gain admittance to a partnership?
A person can gain admittance to a partnership by purchasing all or part of a current partner's interest or
by investing assets in the partnership.
AACSB: Reflective thinking
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-03 Prepare the journal entry to record the initial capital investment made by a partner.
Topic: Accounting for Capital Contributions
65. What events cause the dissolution of a partnership?
The dissolution of a partnership occurs whenever there is a change in the members that make up the
partnership. Dissolution does not mean going out of business, although, on occasion, dissolution would
be accompanied by liquidation of assets and termination of the business. Dissolution would occur
whenever a new partner is admitted to the partnership, dissolving one partnership and forming a new
one. Dissolution also occurs when a partner leaves the partnership or when a partner dies or retires. The
Articles of Partnership may allow the partners to force dissolution under some circumstances.
AACSB: Reflective thinking
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-07 Explain the meaning of partnership dissolution and understand that a dissolution will often have little or no effect
on the operations of the partnership business.
Topic: Accounting for Partnership Dissolution
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66. For what events or conditions should the Articles of Partnership make provision?
The Articles of Partnership should be a comprehensive document that is fair to all the partners. It should
contain the following provisions:
(A.) The amounts that will be invested in the partnership by the founding partners.
(B.) The amounts of withdrawals that partners can make. Limiting the amount of withdrawals causes the
partners to maintain a reasonable investment in the partnership.
(C.) The division of income or loss between the partners.
(D.) Guidelines for admission of new partners or withdrawal or retirement of partners.
(E.) In some cases, guidelines for division of assets when the partnership liquidates.
In addition, the Articles of Partnership should specify how much time each partner will spend in the
business; the responsibilities of each partner; and procedures for resolution of disputes between partners.
AACSB: Reflective thinking
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the purpose of the articles of partnership and list specific items that should be included in this
agreement.
Topic: Articles of Partnership
67. How is accounting for a partnership different from accounting for a corporation?
Financial accounting for a partnership differs from corporate accounting only in accounting for owners'
equity. A partnership does not sell capital stock and does not have a retained earnings account. Each
partner will have a capital account and a drawing account. On the balance sheet, the balance in each of
the partner's capital accounts should be reported. The accountant for a partnership must divide income or
loss among partners, following the provisions of the Articles of Partnership. Income tax accounting
differs between corporations and partnerships. A corporation is a taxable entity and must file an income
tax return. A partnership is not a taxable entity but is required to file an informational return that reports
the various amounts of revenues and expenses attributed to each partner.
AACSB: Reflective thinking
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-01 Explain the advantages and disadvantages of the partnership versus the corporate form of business.
Topic: Partnerships - Advantages and Disadvantages
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68. Why are the terms of the Articles of Partnership important to partners?
The Articles of Partnership contain terms that help to protect the interests of each partner and the
longevity and profitability of the business. One of the most important terms in the Articles of Partnership
is the provision for division of income or loss. The amount of income or loss assigned to partners affects
the balances in their capital accounts and may affect the amount of withdrawals the partners can make
and the assets they receive upon the liquidation of the partnership. The terms in the Articles of
Partnership help to prevent one partner from taking advantage of other partners.
AACSB: Reflective thinking
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the purpose of the articles of partnership and list specific items that should be included in this
agreement.
Topic: Articles of Partnership
69. Brown and Green are forming a business as partners. If they do not create a formal written partnership
agreement, what risks are they exposing themselves to?
The Articles of Partnership should help every partner protect his or her interests. Because of mutual
agency and unlimited liability, being a partner involves some risk. If a partnership becomes insolvent,
any or all of the partners may be required to use personal assets to settle partnership liabilities. The
Articles of Partnership can require each partner to maintain his or her investment in the partnership and
to meet other responsibilities, such as working in the business. With a formal written agreement, each
partner would have recourse if another partner does not fulfill the terms in the Articles of Partnership.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the purpose of the articles of partnership and list specific items that should be included in this
agreement.
Topic: Articles of Partnership
14-87
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70. What theoretical argument could be made against the recognition of goodwill when there is a change in
the ownership of a partnership?
AACSB: Reflective thinking
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-04 Use both the bonus method and the goodwill method to record a partner's capital investment.
Topic: Intangible Contributions
71. Under what circumstances does a partner's balance in his or her capital account have practical
consequences for the partner?
The most direct practical consequence of a partner's capital account balance occurs when the partnership
is liquidated. After assets are sold and liabilities are paid, each partner receives the balance in his or her
capital account. The balance in the capital account may also influence the division of income or loss each
year and could affect the amount of cash each partner is allowed to withdraw from the partnership.
AACSB: Reflective thinking
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 14-03 Prepare the journal entry to record the initial capital investment made by a partner.
Topic: Accounting for Capital Contributions
14-88
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72. Reed, Sharp, and Tucker were partners with capital account balances of $80,000, $100,000, and $70,000,
respectively. They agreed to admit Upton to the partnership. Upton purchased 30% of each partner's
interest, with payments directly to Reed, Sharp, and Tucker of $32,000, $40,000, and $28,000,
respectively. Before the admission of Upton, the profit and loss sharing ratio was 2:3:2. The partners
agreed to use the book value method to account for the admission of Upton to the partnership.
Required:
Prepare the journal entry to record the admission of Upton to the partnership.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-08 Prepare journal entries to record the acquisition by a new partner of either all or a portion of a current partner's
interest.
Topic: Admission through Purchase of a Current Interest
73. Jipsom and Klark were partners with capital account balances of $80,000 and $100,000, respectively.
Looney directly paid $32,000 to Jipsom and $40,000 to Klark for 30% of their interests in the
partnership. Jipsom and Klark shared income in the ratio of 2:3. They believed that revaluation of the
partnership was appropriate when a new partner was admitted.
Required:
Prepare the journal entries to record the admission of Looney to the partnership.
AACSB: Analytic
AICPA BB: Legal
14-89
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McGraw-Hill Education.
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 14-08 Prepare journal entries to record the acquisition by a new partner of either all or a portion of a current partner's
interest.
Topic: Admission through Purchase of a Current Interest
74. Norr and Caylor established a partnership on January 1, 2012. Norr invested cash of $100,000 and
Caylor invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000.
For both partners, the beginning capital balance was to equal the initial investment. Norr and Caylor
agreed to the following procedure for sharing profits and losses:
The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month.
For 2012, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400
billable hours. In 2013, the partnership's income was $24,000, and Norr and Caylor worked 800 and
1,200 billable hours respectively. Each partner withdrew $1,000 per month throughout 2012 and 2013.
Determine the amount of net income allocated to each partner for 2012.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
14-90
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75. Norr and Caylor established a partnership on January 1, 2012. Norr invested cash of $100,000 and
Caylor invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000.
For both partners, the beginning capital balance was to equal the initial investment. Norr and Caylor
agreed to the following procedure for sharing profits and losses:
The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month.
For 2012, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400
billable hours. In 2013, the partnership's income was $24,000, and Norr and Caylor worked 800 and
1,200 billable hours respectively. Each partner withdrew $1,000 per month throughout 2012 and 2013.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
14-91
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76. Norr and Caylor established a partnership on January 1, 2012. Norr invested cash of $100,000 and
Caylor invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000.
For both partners, the beginning capital balance was to equal the initial investment. Norr and Caylor
agreed to the following procedure for sharing profits and losses:
The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month.
For 2012, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400
billable hours. In 2013, the partnership's income was $24,000, and Norr and Caylor worked 800 and
1,200 billable hours respectively. Each partner withdrew $1,000 per month throughout 2012 and 2013.
Determine the amount of net income allocated to each partner for 2013. (Round all calculations to the
nearest whole dollar).
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Alternative Allocation Techniques - Example 1
14-92
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77. Norr and Caylor established a partnership on January 1, 2012. Norr invested cash of $100,000 and
Caylor invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000.
For both partners, the beginning capital balance was to equal the initial investment. Norr and Caylor
agreed to the following procedure for sharing profits and losses:
The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month.
For 2012, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400
billable hours. In 2013, the partnership's income was $24,000, and Norr and Caylor worked 800 and
1,200 billable hours respectively. Each partner withdrew $1,000 per month throughout 2012 and 2013.
Determine the balance in both capital accounts at the end of 2013 to the nearest dollar.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
14-93
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78. The ABCD Partnership has the following balance sheet at January 1, 2012, prior to the admission of new
partner, Eden.
Eden contributes $49,000 into the partnership for a 25% interest. The four original partners share profits
and losses equally. Using the bonus method, determine the balances for each of the five partners after
Eden joins the partnership.
Eden's contribution of $49,000 into the partnership raises the total partnership net assets to $400,000.
Eden's capital account is credited, by agreement, for 25% of the partnership's total tangible assets, or
$100,000.
The journal entry to record the admission of Eden is:
The capital balances of each of the five partners after Eden's entry into the partnership are as follows:
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to the partnership.
Topic: Admission by a Contribution Made to the Partnership
14-94
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79. The ABCD Partnership has the following balance sheet at January 1, 2012, prior to the admission of new
partner, Eden.
Eden contributed $124,000 in cash to the business to receive a 20% interest in the partnership. Goodwill
was to be recorded. The four original partners shared all profits and losses equally. After Eden made his
investment, what were the individual capital balances?
Eden's contribution of $124,000 to the partnership increases the partnership's net assets to $475,000. The
implied value of the partnership is $620,000 ($124,000 ÷ 20%). Goodwill of $145,000 ($620,000 -
$475,000) resulted from this transaction.
The first entry requires that the goodwill be allocated to each of the original four partners according to
their profit and loss sharing percentages. As indicated in the problem, the four original partners share
profits and losses equally.
After allocating the goodwill to each of the original four partners, their partnership capital balances are
as follows:
The second step is to record Eden's cash contribution and to record Eden's capital account balance:
AACSB: Analytic
14-95
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McGraw-Hill Education.
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to the partnership.
Topic: Admission by a Contribution Made to the Partnership
80. The ABCD Partnership has the following balance sheet at January 1, 2012, prior to the admission of new
partner, Eden.
Eden acquired a 20% interest in the partnership by contributing a total of $71,500 directly to the other
four partners. No goodwill is to be recorded. Profits and losses have previously been split according to
the following percentages: Adams, 15%, Barnes, 35%, Cordas, 30%, and Davis, 20%. After Eden made
his investment, what were the individual capital balances?
The partnership's total net assets are still $351,000, because Eden's $71,500 went to the partners. Using
the book value method, each of the original partners will give up 20% of their current capital balance to
Eden. The journal entry is:
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
14-96
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Difficulty: 2 Medium
Learning Objective: 14-08 Prepare journal entries to record the acquisition by a new partner of either all or a portion of a current partner's
interest.
Topic: Admission through Purchase of a Current Interest
14-97
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McGraw-Hill Education.
14-98
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McGraw-Hill Education.
81. The ABCD Partnership has the following balance sheet at January 1, 2012, prior to the admission of new
partner, Eden.
Eden acquired a 20% interest in the partnership by contributing a total of $71,500 directly to the other
four partners. Goodwill is to be recorded. Profits and losses have previously been split according to the
following percentages: Adams, 15%; Barnes, 35%; Cordas, 30%; and Davis, 20%. After Eden made his
investment, what were the individual capital balances?
Eden's contribution of $71,500 will go to the original four partners, not into the partnership. Therefore,
the partnership's total net assets remain $351,000. The implied value of the partnership, based on Eden's
contribution, is $357,500 ($71,500 ÷ 20%). Goodwill arising out of this transaction is $6,500.
First, the goodwill should be allocated to each of the original four partners:
The adjusted balances for the four original partners, after allocating goodwill, are:
The next step is to allocate 20% of each of the original partners' balances to Eden:
14-99
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McGraw-Hill Education.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-08 Prepare journal entries to record the acquisition by a new partner of either all or a portion of a current partner's
interest.
Topic: Admission through Purchase of a Current Interest
14-100
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82. Assume the partnership of Dean, Hardin, and Roth has been in existence for a number of years. Dean
decides to withdraw from the partnership when the partners' capital balances are as follows:
An appraisal of the business and its property estimates the fair value to be $100,000. Dean has agreed to
receive $64,000 in exchange for his partnership interest.
Prepare the journal entry for the payment to Dean in the dissolution of his partnership interest, assuming
the bonus method is to be applied.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
Topic: Dissolution - Withdrawal of a Partner
14-101
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83. Assume the partnership of Dean, Hardin, and Roth has been in existence for a number of years. Dean
decides to withdraw from the partnership when the partners' capital balances are as follows:
An appraisal of the business and its property estimates the fair value to be $100,000. Dean has agreed to
receive $64,000 in exchange for his partnership interest.
What are the remaining partners' capital balances after Dean's interest is dissolved, assuming the bonus
method is applied?
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
Topic: Dissolution - Withdrawal of a Partner
14-102
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84. Assume the partnership of Howell, Madrid, and Waldrop has been in existence for a number of years.
Howell decides to withdraw from the partnership when the partners' capital balances are as follows:
An appraisal of the business and its net assets estimates the fair value to be $154,000. Land with a book
value of $20,000 has a fair value of $35,000. Howell has agreed to receive $84,000 in exchange for her
partnership interest.
Prepare the journal entries for the dissolution of Howell's partnership interest, assuming the goodwill
method is to be applied.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
Topic: Dissolution - Withdrawal of a Partner
14-103
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85. Assume the partnership of Howell, Madrid, and Waldrop has been in existence for a number of years.
Howell decides to withdraw from the partnership when the partners' capital balances are as follows:
An appraisal of the business and its net assets estimates the fair value to be $154,000. Land with a book
value of $20,000 has a fair value of $35,000. Howell has agreed to receive $84,000 in exchange for her
partnership interest.
What are the remaining partners' capital balances after Howell's interest is dissolved, assuming the
goodwill method is applied?
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
Topic: Dissolution - Withdrawal of a Partner
14-104
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86. On January 1, 2013, Lamb and Mona LLP admitted Noris to a 20% interest in net assets for an
investment of $50,000 cash. Prior to the admission of Noris, Lamb and Mona had net assets of $100,000
and an income-sharing ratio of 25% to Lamb and 75% to Mona. After the admission of Noris, the
partnership contract included the following provisions:
Record the journal entry for the admission of Noris. Goodwill is not to be recorded.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-03 Prepare the journal entry to record the initial capital investment made by a partner.
Topic: Accounting for Capital Contributions
87. On January 1, 2013, Lamb and Mona LLP admitted Noris to a 20% interest in net assets for an
investment of $50,000 cash. Prior to the admission of Noris, Lamb and Mona had net assets of $100,000
and an income-sharing ratio of 25% to Lamb and 75% to Mona. After the admission of Noris, the
partnership contract included the following provisions:
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
14-105
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Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
88. On January 1, 2013, Lamb and Mona LLP admitted Noris to a 20% interest in net assets for an
investment of $50,000 cash. Prior to the admission of Noris, Lamb and Mona had net assets of $100,000
and an income-sharing ratio of 25% to Lamb and 75% to Mona. After the admission of Noris, the
partnership contract included the following provisions:
Record the journal entry to record the remainder of net income to the capital accounts.
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Topic: Allocation of Income
14-106
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89. James, Keller, and Rivers have the following capital balances; $48,000, $70,000 and $90,000
respectively. Because of a cash shortage James invests an additional $12,000 on June 1st. Each partner
withdraws $1,000 per month. James, Keller, and Rivers receive a salary of $13,000, $15,000 and
$20,000, respectively, for work done during the year. Each partner receives interest of 8% on their
weighted average capital balance without regard to normal drawings. Any remaining profits are split
20%, 30%, and 50% respectively. The net income for the year is $30,000. What are the ending capital
balances for each partner?
AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
14-107
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Difficulty: 3 Hard
Learning Objective: 14-05 Demonstrate the impact that the allocation of partnership income has on the partners' individual capital
balances.
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Topic: Allocation of Income
Topic: Alternative Allocation Techniques - Example 1
14-108
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