Partnerships - Formation and Operations Part 1

Partnerships: Formation and Operations Answer Key Multiple Choice Questions 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. The bonus method. B. The equity method. C. The goodwill method. D. The proportionate method. E. The cost method. 2. When the hybrid method is used to record the withdrawal of a partner, 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 A. the legal requirements for formation. B. unlimited liability for the partners. C. the requirement for the partnership to pay income taxes. D. the extent of governmental regulation. E. the complexity of operations. 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. 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. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, 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 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011. 7. What was Wasser's total share of net income for 2010? A. $63,000. B. $53,000. C. $58,000. D. $29,000. E. $51,000. 8. What was Nolan's total share of net income for 2010? A. $63,000. B. $53,000. C. $58,000. D. $29,000. E. $51,000. 9. What was Cleary's total share of net income for 2010? A. $63,000. B. $53,000. C. $58,000. D. $29,000. E. $51,000. 10. What was Nolan's capital balance at the end of 2010? A. $200,000. B. $224,000. C. $238,000. D. $246,000. E. $254,000. 11. What was Wasser's capital balance at the end of 2010? A. $150,000. B. $160,000. C. $165,000. D. $213,000. E. $201,000. 12. What was Cleary's capital balance at the end of 2010? A. $100,000. B. $117,000. C. $119,000. D. $129,000. E. $153,000. 13. What was the total capital balance for the partnership at December 31, 2010? A. $600,000 B. $564,000 C. $535,000 D. $523,000 E. $545,000 14. What was the amount of interest attributed to Wasser for 2011? A. $17,600 B. $18,800 C. $20,100 D. $17,800 E. $30,100 15. What was Wasser's total share of net income for 2011? A. $34,420. B. $75,540. C. $65,540. D. $70,040. E. $61,420. 16. What was the remainder portion of net income allocated to Nolan for 2011? A. $45,440 B. $58,040 C. $70,040 D. $72,000 E. $82,040 17. What was Nolan's total share of net income for 2011? A. $34,420. B. $75,540. C. $65,540. D. $70,040. E. $61,420. 18. What was Cleary's total share of net income for 2011? A. $34,420. B. $75,540. C. $65,540. D. $70,040. E. $61,420. 19. What was Nolan's capital balance at the end of 2011? A. $139,420. B. $246,000. C. $276,540. D. $279,440. E. $304,040. 20. What was Wasser's capital balance at the end of 2011? A. $201,000. B. $263,520. C. $264,540. D. $304,040. E. $313,780. 21. What was Cleary's capital account balance at the end of 2011? A. $163,420. B. $151,420. C. $139,420. D. $100,000. E. $142,000. 22. What was the total capital balance for the partnership at December 31, 2011? A. $852,000 B. $780,000 C. $708,000 D. $744,000 E. $594,000 23. What was the amount of interest attributed to Cleary for 2012? 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, 2011 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, 2011, when the partnership tax return for 2010 was completed, Jerry's capital account was credited for his share of 2010 profit of $120,000. Jerry withdrew this amount quarterly, beginning April 1. 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 2011 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 A partnership began its first year of operations with the following capital balances: Young, Capital: $143,000 Eaton, Capital: $104,000 Thurman, Capital: $143,000 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.