Multiple-Choice Questions?Initial Investments, Division of Income, Admission and Retiremen...

Multiple-Choice Questions?Initial Investments, Division of Income, Admission and Retirement of a Partner [AICPA Adapted]

Select the correct answer for each of the following questions.

Select the correct answer for each of the following questions.

1.   When property other than cash is invested in a partnership, at what amount should the noncash property be credited to the contributing partner's capital account?

a.   Contributing partner's tax basis.

b.   Contributing partner's original cost.

c.   Assessed valuation for property tax purposes.

d.   Fair value at the date of contribution.

2.    William and Martha drafted a partnership agreement that lists the following assets contributed at the partnership's formation:

The building is subject to a $10,000 mortgage, which the partnership has assumed. The partnership agreement also specifies that profits and losses are to be distributed evenly. What amounts should be recorded as capital for William and Martha at the formation of the partnership?

3.    Smith and Duncan are partners with capital balances of $60,000 and $20,000, respectively. Profits and losses are divided in the ratio of 60:40. Smith and Duncan decided to form a new partnership with Johnson, who invested land valued at $15,000 for a 20 percent capital interest in the new partnership. Johnson's cost of the land was $12,000. The partnership elected to use the bonus method to record the admission of Johnson into the partnership. Johnson's capital account should be credited for

a.   $12,000.

b.   $15,000.

c.   $16,000.

d.   $19,000.

4.    On April 30, 20X5, Apple, Blue, and Crown formed a partnership by combining their sepa­rate business proprietorships. Apple contributed $50,000 cash. Blue contributed property with a $36,000 carrying amount, a $40,000 original cost, and $80,000 fair value. The partnership accepted responsibility for the $35,000 mortgage attached to the property. Crown contributed equipment with a $30,000 carrying amount, a $75,000 original cost, and $55,000 fair value. The partnership agreement specifies that profits and losses are to be shared equally but is silent regarding capital contributions. Which partner has the largest April 30, 20X5, capital account balance?

a.   Apple.

b.   Blue.

c.   Crown.

d.   All capital account balances are equal.

Note: The following information is for questions 5 and 6:

The Moon-Norbert Partnership was formed on January 2, 20X5. Under the partnership agree­ment, each partner has an equal initial capital balance accounted for under the goodwill method. Partnership net income or loss is allocated 60 percent to Moon and 40 percent to Norbert. To form the partnership, Moon originally contributed assets costing $30,000 with a fair value of $60,000 on January 2, 20X5, and Norbert contributed $20,000 in cash. Partners' drawings dur­ing 20X5 totaled $3,000 by Moon and $9,000 by Norbert. Moon-Norbert's net income for 20X5 was $25,000.

5.    Norbert's initial capital balance in Moon-Norbert is

a.   $20,000.

b.   $25,000.

c.   $40,000.

d.   $60,000.

6.    Moon's share of Moon-Norbert's net income is

a.   $15,000.

b.   $12,500.

c.   $12,000.

d.   $7,800.

7.    In the Crowe-Dagwood partnership, Crowe and Dagwood had a capital ratio of 3:1 and a profit and loss ratio of 2:1. They used the bonus method to record Elman's admittance as a new

partner. What ratio should be used to allocate, to Crowe and Dagwood, the excess of Elman's contribution over the amount credited to Elman's capital account?

a.   Crowe and Dagwood's new relative capital ratio.

b.   Crowe and Dagwood's new relative profit and loss ratio.

c.    Crowe and Dagwood's old capital ratio.

d.   Crowe and Dagwood's old profit and loss ratio.

8. Blue and Green formed a partnership in 20X4. The partnership agreement provides for annual salary allowances of $55,000 for Blue and $45,000 for Green. The partners share profits equally and losses in a 60:40 ratio. The partnership had earnings of $80,000 for 20X5 before any allow­ance to partners. What amount of these earnings should be credited to each partner's capital account?

9. When Jill retired from the partnership of Jill, Bill, and Hill, the final settlement of her interest exceeded her capital balance. Under the bonus method, the excess

a.   Was recorded as goodwill.

b.   Was recorded as an expense.

c.   Reduced the capital balances of Bill and Hill.

d.    Had no effect on the capital balances of Bill and Hill.