Multiple choice questions:

1. A partnership is a(n):
I. Accounting Entity
II. Taxable Entity
A. I only
B. II only
C. Neither I nor II
D. Both I and II

2. In the ABC partnership (To which Daniel seeks admittance), the capital balances of Albert, Bert,
and Connell, who share in the ratio of 5:3:2 are:
Albert $500,000
Bert $300,000
Connell $200,000
Based on the preceding information, if no goodwill or bonus is recorded, how much should
Daniel invest for a 20% interest?
A. $400,000
B. $200,000
C. 300,000
D. $250,000

3. Jones and Smith formed a partnership with each other contributing the following items:
Jones Smith
Cash $80,000 $40,000
Building – Cost to Jones 300,000
Fair Value 400,000
Inventory – Cost to Smith 200,000
Fair Value 280,000
Mortgage Payable 120,000
Accounts Payable 60,000

Refer to the above information. What is the balance in each partner’s capital account for
financial accounting purposes?
Jones Smith
A. $350,000 $270,000
B. $260,000 $180,000
 C. $360,000 $260,000
D. $500,000 $300,000
A. Option A
B. Option B
C. Option C
D. Option D

4. Which of the following accounts should found in the PQ partnership balance sheet?
I. Due from P
II. P, Drawing
III. Loan Payable to Q
A. I,II
B. I,III
C. II,III
D. I,II,III

5. The DEF partnership reported net income of $130,000 for the year ended December 31, 2008.
According to the partnership agreement, partnership profits and losses are to be distributed as
follows:
D E F
Salaries $25,000 $20,000 $15,000
Bonus on net income 10% -- --
Remainder 60% 30% 10%
How should partnership net income for 2008 be allocated for D, E, F?
D E F
A. $78,000 $39,000 $13,000
B. $72,200 $37,100 $20,700
C. $52,500 $75,000 $22,500
D. $42,500 $42,500 $65,000
A. Option A
B. Option B
C. Option C
D. Option D

6. The JPB partnership reported net income $160,000 for the year ended December 31, 2008.
According to the partnership agreement, partnership profit and losses are to be distributed as
follows:
J P B
Salaries $50,000 $60,000 $30,000
 Bonus on net income 10% 5% 10%
Remainder (if positive) 60% 30% 10%
Remainder (if negative) 30% 40% 30%
How should partnership net income for 2008 be allocated for J, P, and B
J P B
A. $96,000 $48,000 $16,000
B. $58,000 $64,000 $38,000
C. $60,000 $60,000 $40,000
D. $66,000 $68,000 $46,000
A. Option A
B. Option B
C. Option C
D. Option D

7. When a new partner is admitted into a partnership and the capital of the old partners decreases,
which of the following explains the reason for the decrease?
I. Undervalued liabilities were written up to their fair values.
II. Undervalued assets were written up to their fair values.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

8. When the old partners receive a bonus upon submission of a new partner into the partnership, the
bonus is allocated to:
I. All the partners in their profit and loss sharing ratio
II. The existing partners in their profit and loss sharing ratio
A. I only
B. II only
C. Either I or II
D. Neither I nor II

9. When a new partner is admitted into a partnership and the old partner’s goodwill is recognized,
the goodwill is allocated to:
I. All the partners in their profit and loss sharing ratio.
II. The old partners in their profit and loss sharing ratio.
A. I only
B. II only
C. Either I or II
D. Neither I nor II
In the RST partnership, Ron’s capital is $80,000, Stella’s is $75,000 and Tiffany’s is $50,000. They
share income in 3:2:1 ratio, respectively. Tiffany is retiring from the partnership. Each of the following
questions is independent of the others.

10. Refer to the above information. Tiffany is paid $60,000, and no goodwill is recorded. In the journal
entry to record Tiffany’s withdrawal:
A. Tiffany, Capital will be credited for $60,000.
B. Ron, Capital will be debited for $5,000
C. Stella, Capital will be debited for $4,000
D. Cash will be debited for $60,000

11. Refer to the above information as well. Tiffany is paid $60,000, and no goodwill is recorded. What
is Ron’s capital balance after Tiffany withdraws from the Partnership?
A. $74,000
B. $71,000
C. $75,000
D. $86,000

In the AD partnership, Allen’s capital is $140,000 and Daniel’s is $40,000 and they share the income
in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following
questions is independent of the others.

12. Refer to the above information. What will David have to invest to give him one-fifth percent interest
in the capital of the partnership if no goodwill or bonus is recorded?
A. $60,000
B. $36,000
C. $50,000
D. $45,000

13. Refer to the information provided above. Assume that Daniel invests $50,000 for a one-fourth
interest. Goodwill is to be recorded. The journal to record David’s admission into the partnership
will include:
A. A Credit Card for $50,000
B. A debit to goodwill for $7,500
C. A credit to David, Capital for 60,000
D. A credit to David, Capital for 50,000
14. Refer to the information provided above. Allen and Daniel agree that some of the inventory is
obsolete. The inventory account is decreased before David is admitted. David invests $40,000 for
a one-fifth interest. What is the amount of inventory written down?
A. $4,000
B. $20,000
C. $15,000
D. $10,000

15. Refer to the information provided above. Allen and Daniel agree that some of the inventory is
obsolete. The inventory account is decreased before David is admitted. David invests $40,000 for
a one-fifth interest. What are the capital balances of Allen and Daniel after David is admitted into
the partnership?
Allen Daniel
A. $140,000 $40,000
B. $125,000 $35,000
C. $120,000 $36,000
D. $137,000 $39,000
A. Option A
B. Option B
C. Option C
D. Option D

16. Refer to the information above. David directly purchases one-fifth interest by paying Allen $34,000
and Daniel $10,000. The land account is increased before David is admitted. By what amount is
the land account increase?
A. $40,000
B. $10,000
C. $36,000
D. $20,000

17. Refer to the information above. David directly purchases one-fifth interest by paying Allen $34,000
and Daniel $10,000. The land account is increased before David is admitted. What are the capital
balances of Allen and Daniel after David is admitted into the partnership?
Allen Daniel
A. $136,000 $34,000
B. $160,000 $60,000
C. $170,000 $50,000
D. $140,000 $40,000
A. Option A
B. Option B
C. Option C
D. Option D
18. Refer to the information provided above. David invests $40,000 for a one-fifth interest in the total
capital of $220,000. The journal to record David’s admission into the partnership will include:
A. Credit to Cash $40,000
B. Debit to Allen, Capital for $3,000
C. Credit to David, Capital for $40,000
D. A credit to Daniel, for the capital of $1,000

19. Refer to the information provided above. David invests $40,000 for a one-fifth interest in the total
capital of $220,000. What are the capital balances of Allen and Daniel after David is admitted into
the partnership?
I. $160,000 $60,000
II. $136,000 $36,000
III. $140,000 $40,000
IV. $137,000 $39,000
A. Option I
B. Option II
C. Option III
D. Option IV

20. The terms of a partnership agreement provide that one of the partners is to receive a salary
allowance of 30,000, plus a bonus of 20% of income after the deduction of the bonus and the
salary allowance. If the income is $150,000, the bonus should be:
A. $18,000
B. $20,000
C. $24,000
D. $30,000

21. The partnership of X and Y shares profit and losses in the ratio of 60% to X and 40% to Y. For the
year 2008, the partnership net income was double X’s withdrawal. Assume X’s beginning capital
balance was $80,000, and the ending capital balance (after closing) was $140,000. Partnership
net income for the year was:
A. $120,000
B. $300,000
C. $500,000
D. $600,000

22. Shue, a partner in the Financial Brokers Partnership, has a 30% share in the partnership profits
and losses. Shue’s capital account had a net decrease of $100,000 during 2008. During 2008,
Shue withdrew $240,000 as withdrawals and contributed equipment valued at $50,000 to the
partnership. What was the net income of the Financial Brokers Partnership for 2008?
A. $633,334
B. $466,666
C. $300,000
D. 190,000
23. Transferable interest of a partner includes all of the following except:
A. The partner’s share of the profit and losses of the partnership
B. The right to receive distributions
C. The right to receive any liquidating distribution
D. The authority to transact any of the partnership’s business operations.

24. Pedro, Chris, and Paul are partners with present Capital balances of $393,750; $472,500; and
$157,500, respectively. The partners share profits and losses according to the following
percentages: 60% for Pedro; 20% for Chris; and 20% for Paul. Brian is to join the partnership
upon contributing $157,500 cash, plus equipment with a fair market value of $315,000 of the
partnership in exchange for 25% interest in the capital and 20% interest in the profits and losses.
The existing assets of the original partnership are overvalued by $96,250. The original partners
will share the balance of profits in their original ratio. Calculate the balances of each partner in the
new partnership.
Pedro Chris Paul Brian
A. $630,000 $551,250 $236,250 $472,500
B. $409,500 $477,750 $162,750 $350,000
C. $393,750 $472,500 $157,500 $472,500
D. $467,250 $497,000 $182,000 $350,000

Rey and Marlon are partners with profit and loss ratio of 75:25 and capital balances of $525,000 and
$262,500 respectively. Nald is to be admitted into the partnership by purchasing a 20% interest in the
capital, profit and losses for $315,000.

25. Based on the preceding information above. Assuming no asset revaluation is to be made, the
capital balances of Rey and Marlon, respectively, after admission of Nald are:
A. $588,000 and $199,500
B. $630,000 and $315,000
C. $420,000 and $210,000
D. $525,000 and $262,500

26. Based again on the preceding information above. Assuming that the equipment of the partnership
is undervalued, the capital balances of Rey, Marlon and Nald respectively, after the admission
are:
A. $892,500; $367,500; 315,000
B. $1,010,625; $406,875; $157,500
C. $420,000; $210,000; $157,500
D. $525,000; $262,500; $315,000

27. If the agreement provides for the division of losses only. Profits should be divided:
 A. Equally
B. According to original capital Ratio
C. According to beginning capital ratio
D. According to the average capital ratio

28. The following are considered as expenses of the partnership, Except:

A. Office Supplies used
B. Salaries of manager employed in the company.
C. Bonus to managing partner.
D. Interest on the partnership standing loan.

29. Which of the following statements best describes the fundamentals of the partnership’s profit or
loss distribution?
A. Profit or losses are divided by capital contribution.
B. Profit or losses are divided equally
C. Profit or losses are distributed based on the number partners
D. Profit or losses are distributed based on partner’s agreement

30. What is the underlying purpose of the interest on capital balances component of allocating
partnership’s profit and losses?
A. Compensate partners who contribute economic resources to the partnership
B. Reward for special responsibilities undertaken
C. Reward labor and expertise contributions
D. All of the above.

31. If there is no agreement as to the distribution of losses, the following partner would share in the
losses of the partnership except:
A. Limited partner
B. Capitalists partner
C. Industrial partner
D. Industrial-Capitalist partner

32. When there is no partnership agreement regarding the distribution of profits, the profits will be
distributed based on:
A. Beginning Capital
B. Ending Capital
C. Average Capital
D. Original Capital

33. In determining the partner’s average capital, the partners’ temporary withdrawals are:
 A. Included in the computation of average capital
B. Not considered in the computation average capital
C. Both A and B
D. Neither A or B

34. Which of the following circumstances will decrease the capital of a partner in the partnership?
A. Reclassification adjustment of cumulative debit balance of other comprehensive income to the
profit or loss
B. Share in net income of the partnership
C. Additional Investment or contribution to the partnership
D. None of the above

35. This allowance for profit allocation is given only if there is a profit.
A. Interest allowance
B. Salary allowance
C. Bonus allowance
D. All of the above

36. A partner’s withdrawal of asset from partnership that is considered a permanent reduction in that
partner’s equity to the partners.
A. Drawing Accounts
B. Retained earnings account
C. Loan receivable amount
D. Capital Account

37. The method of admitting a new partner in the partnership which involves a personal transaction
between the new partner and exiting the partner is known as:
A. Investment Method
B. Revaluation Method
C. Bonus Method
D. Purchase Method

38. Which of the following does not dissolve the partnership?

A. Admission of new partner
B. Assignment of partner’s interest
C. Investment of a new partner in the partnership
D. Insanity of a partner
39. If a new partner purchase his interest to the existing partner, the journal entry includes:
A. A debit to the capital of the new partner.
B. A debit of selling partner capital
C. A debit of bonus
D. A debit of Cash

40. Which of the following forms of new partner admission will not result in a change in partnership
capital?
A. Bonus Method
B. Revaluation Method
C. Purchase of interest directly from an existing partner.
D. Purchase of interest directly from the partnership.