Question

7. A contingency that is remote A) should be disclosed in the financial statements. B) must be accrued as a loss. C) does not need to be disclosed. D) is recorded as a contingent liability 8. A general partner in a partnership A) has unlimited liability for all partnership debts. B) is always the general manager of the firm. C) is the partner who lacks a specialization. D) is liable for partnership liabilities only to the extent of that partner's capital equity. 9. A partner invests into a partnership a building with an original cost of $360,000 and accumulated depreciation of $160.000. This building has a $280,000 fair value. As a result of the investment, the partner's capital account will be credited for A) $280,000. B) $200,000. C) $360,000. D) $480,000. 10. Brian and Sandy are forming a partnership, Brian will invest a truck with a book value of S10,000 and a fair value of $14,000. Sandy will invest a building with a book value of $30,000 and a fair value of $42,000 with a mortgage of $15,000. At what amount should the building be recorded? A) $30,000 B) $27,000 C) $42,000 D) $45,000 11. The partnership agreement of Alix, Gise, and Bosco provides for the following income ratio: (a) Alix, the managing partner, receives a salary allowance of $108,000, (b) each partner receives 15 % interest on average capital investment, and (c) remaining net income or loss is divided equally. The average capital investments for the year were: Alix $600,000, Gise $1,200,000, and Bosco $1,800,000. If partnership net income is $720,000, the amount distributed to Gise should be: A) $180,000. B) $186,000. C) $204,000. D) $240,000. Page 2 C D E 31 A cB C cD E 32 A cB Ca D: 33 Fa AVEE

Answer 1

7) C) does not need to be disclosed

A contingency which is remote, that is the probability of occurence of loss is so far, and it will not affect the financial statements. Hence, a contingency that is remote are not recorded in the finanacial statements and no disclosure is made.

8) A) has unlimited liability for all partnership debts

A general partner is an active manager in the partnership firm. The liability towards paying the partnership debts is unlimited and his personal assets will get reduced for paying the debt but the other limited partners have limited liability in paying the debts. Hence, General partner has unlimited liability for all partnership debts.

9) Option B) $200,000

The value of the asset is to be recorded in the books as cost less accumulated depreciation

Value of the building = cost - depreciation

= $ 360,000 - $160,000

= $ 200,000

10) Option C - $42,000

The building should be recorded at fair value of the building = $ 42,000. A mortgage does not affect the building's book value