Midterm Review Flashcards
An advantage of the partnership form of business organization is
ease of formation
Partnership income and losses are usually divided on the basis of interest, salaries and stated ratios because
partners seldom contribute time and resources equally
John and Mary are forming a partnership. John will invest a piece of equipment with a book value of $10000 and a fair market value of $30000. Mary will invest a building with a book value of $60,000 and a fair market value of $70,000. At what amount will the building be recorded?
$70,000 (FMV)
A partner withdraws from a partnership by selling her interest to another person who currently is not associated with the firm. As a result of this transaction, the capital account balance of the other parners is
will remain the same
Sam and Mark are partners in a business. Sam’s original capital was $40,000 and Mark’s was $60,000. They agree to salaries of $12,000 and $18,000 for Sam and Mark respectively, and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will Sam’s share of the income be if the income for the year was $15,000?
$1,000
A partnership liquidation occurs when
the assets are sold, liabilities paid, and business operations terminated
The balance sheet of a company prior to being liquidated: cash $20,000, other assets $160,000; liabilities, $40,000; A, capital, $60,000; B capital, $80,000. The other assets were sold for $139,000. The partners share profits and losses in a 2:1 ratio. As a final cash distribution from the liquidation partner A will receive cash of
$46,000
A change in the ownership of a partnership results in the
dissolution of the partnership.
When a partnership is formed, assets contributed by the partners shoudl be recorded on the partnership books at their
fair market value at the time of the contribution
Accounting for the day-to-day activities for a partnership or LImited Liability Company
is the same as the accounting for any other form of business
What is the advantage of a partnershp when compared to a corporation
the partnership is relatively inexpensive to organize.
Those most responsible for the major policy decisions of corporation are the
Board of directors
What account is reported int he paid-in-capital/stockholders’ equity section of the corporate balance sheet?
Preferred Stock
The excess of issue price over par of common stock is termed
Premium
The entry to record the issuance of common stock at a price above par includes a debit to
Cash
When common stock is issued in exchange for a noncash asset, the transaction should be recorded
at the fair market value of the asset acquired or the fair market value of the sstock, whichever can be determined more objectively.
Treasury stock shares are
issued shares that are held by the treasurer of the corporation
Treasury stock which ws purchased for $6,000 is sold for $6,500. As a result of these two transactions comnbined
stockholders’ equity will be increased by $500.
The primary purpose of a stock split is to
reduce the market price of the stock per share
What is not an advantage of issuing bonds instead of common stock?
Earnings per share on common stock may be lower.
When the market rate of interest on bonds is higher than the contract rate, the bonds will sell at
a discount.
The entry to record the amortization of a premium on bonds payable on an interest payment date includes
debit Interest Expense, debit Premium on Bonds Payable, credit cash
The journal entry a company records for the payment of interest, interest expense, and amortization of bond discount is
debit Interest Expense, credit Cash and Discoutn on Bonds Payable
The interest expense recorded on an interest payment date is increased
by the amortization of discount on bonds payable
