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Flashcards in MISCD Deck (25):
1

The Flat and Iron partnership agreement provides for Flat to receive a bonus on profits before the bonus. Remaining profits and losses are divided between Flat and Iron in the ratio of 2 to 3, respectively. Which partner has a greater advantage when the partnership has a profit or When it has a loss?

    Profit      Loss

a.  Flat        Iron

b. Flat         Flat

c. Iron         Flat

d. Iron         Iron

Flat   Flat

2

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% to Cor and 40% to Eng. To form the partnership, Cor originally contributed assets costing $30,000 with a fair value of $60,000 on January 2, year I, While Eng contributed $20,000 in cash. Drawings by the partners during year I totaled $3,000 by Cor and $9,000 by Eng. Cor-Eng's year I net income was $25,000. Eng's initial capital balance in Car-Eng is 

$60,000

3

Cicci and Arias are partners who share profits and losses in the ratio of 7:3, respectively. On October 5, year 1, their respective capital accounts were as follows:

Cicci   $35,000

Arias     30,000

Tota    $65,000

On that date they agreed to admit Soto as a partner with a one-third interest in the capital and profits and losses, upon his investment of $25,000. The new partnership will begin with a total capital of $90,000. Immediately after Soto's admission, what are the capital balances of Cicci, Arias, and Soto, respectively? 

$31,500; 28,500; 30,000

4

On March I, year I, Smith and Dale formed a partnership with each contributing the following assets:

                                                Smith          Dale

Cash                                        $30,000      $70,000

Machinery and equipment         25,000        75,000

Building                                               0      225,000

Furniture and fixtures                  10,000    

The building is subject to a mortgage loan of $80,000, which is to be assumed by the partnership. The partnership agreement provides that Smith and Dale share profits and losses of 30% and 70%, respectively. On March I, year I, the balance in Dale's capital account should be 

$290,000

5

Beck, the active partner in Beck & Cris, receives an annual bonus of 25% of partnership net income after deducting the bonus. For the year ended December 31, year I, partnership net income before the bonus amounted to $300,000. Beck's year I bonus should be 

$60,000

6

Cor-Eng Partnership was formed on January 2, year I. 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% to Cor and 40% to Eng. To form the partnership, Cor originally contributed assets costing $30,000 with a fair value of $60,000 on January 2, year I, While Eng contributed $20,000 in cash. Drawings by the partners during year I totaled $3,000 by Cor and $9,000 by Eng. Cor-Eng's year I net income was $25,000. Cor's share of Cor-Eng's year I net income is 

$15,000

7

The December 31, year 1 condensed balance sheet of Mason, & Gross, a partnership, follows:

Current assets   $125,000

Equipment (net)     15,000

Total assets      $140,000

Liabilities          $10,000

Mason capital     80,000  

Gross, capital      50,000

Total liabilities   $140,000

Market values at December 31, year I, are as follows

Current assets   $90,000

Equipment           30,000

Liabilities              10,000

On January 2, year 2, the partnership was incorporated and 1,000 shares of $5 par value common stock were issued. What amount should be credited to additional contributed capital?

$105,000

8

James Dixon, a partner in an accounting firm, decided to withdraw from the partnership. Dixon's share of the partnership profits and losses was 20%. Upon withdrawing from the partnership he was paid $74,000 in final settlement for his interest. The total of the partners' capital accounts before recognition of partnership goodwill prior to Dixon's withdrawal was $210,000. After his withdrawal the remaining partners' capital accounts, excluding their share of goodwill, totaled $160,000. The total agreed-upon goodwill of the firm was 

$120,000

9

On July I, year I, Motta and Puleo formed a partnership, agreeing to share profits and losses in the ratio of 4:6, respectively. Motta contributed a parcel of land that cost him $25,000. Puleo contributed $50,000 cash. The land was sold for $50,000 on July I, year I, four hours after formation of the partnership. How much should be recorded in Motta's capital account on formation of the partnership? 

$50,000

10

Arthur Plack, a partner in the Brite Partnership, has a 30% participation in partnership profits and losses. Plack's capital account had a net decrease of $60,000 during the calendar year, year I.  During year I, Plack withdrew $130,000 (charged against his capital account) and contributed property valued at $25,000 to the partnership. What was the net income of the arite Partnership for year I? 

$150,000

11

Dunn and Grey are partners with capital account balances of $60,000 and $90,000, respectively. They agree to admit Zorn as a partner with one-third interest in capital and profits, for an investment of $100,000, after revaluing the assets of Dunn and Grey. Goodwill to the original partners should be 

$50,000

12

The partnership agreement of Donn, Eddy, and Farr provides for annual distribution of profit or loss in the following sequence:

Donn, the managing partner, receives bonus of 10% of profit.

Each partner receives 6% interest on average capital investment.

Residual profit or loss is divided equally.

Average capital investments for year I were

Donn   $80,000

Eddy      50,000

Farr        30,000

What portion of the $100,000 partnership profit for year I should be allocated to Farr? 

$28,600

13

The partnership of Metcalf, Petersen, and Russell shared profits and losses equally. When Metcalf withdrew from the partnership, the partners agreed that there was unrecorded goodwill in the partnership. Under the bonus method, the capital balances of Petersen and Russell were 

Each reduced by one half of Metcalf's share of the total amount of the unrecorded goodwill. 

14

CPA partnership is formed by two individuals who were previously sole proprietors. Property other than cash which is part of the initial investment in the partnership would be recorded for financial accounting purposes at the 

Fair value of the paperty at the date of the investment. 

15

The partnership agreement for the partnership of Mayo and Pack provided for salary allowances of $45,000 to Mayo and $35,000 to Pack, and the residual profit was allocated equally. During year I, Mayo and Pack each withdrew cash equal to 80% percent of their salary' allowances. If during year I the partnership had profits in excess of $100,000 without regard to salary allowances and withdrawals, Mayo's equity in the partnership would 

Increase more than Pack's.

16

Which statement is true under the installment method of cash distribution for partnerships?

a. The final cash distribution is based on the profit (loss) ratio.

b. The final cash distribution is not based on the profit (loss) ratio.

c. The two key steps in preparing a statement of partnership liquidation include determining the available cash balance and using the profit (loss) ratio to distribute the cash.

d. The two key steps in preparing statement of partnership liquidation include paying off the debts of the partnership and determining which partners are to receive cash payments. 

The final cash distribution is not based on the profit (loss) ratio.

17

Tom, Jane, and Rob are partners with average capital balances during year I of $90,000, $60,000, and $40,000, respectively. Partners receive 10% interest on their average capital balances. After deducting salaries of $30,000 to Tom and $20,000 to Rob, the residual profit or loss is divided equally. In year I the partnership sustained a $33,000 loss before interest and salaries to partners. By what amount should Tom's capital account change? 

$5,000 increase. 

18

The capital accounts of the partnership of Newton, Sharman, and Jackson on June I, year I, are presented below with their respective profit and loss ratios.

Newton      $139,200 1/2

Sharman      208,800 1/3

Jackson         96,000 1/6

                  $444,000

On June I, year I, Sidney was admitted to the partnership when he purchased, for $132,000, a proportionate interest from Newvton and Sharman in the net assets and profits of the partnership. As a result of this transaction, Sidney acquired a one-fifth interest in the net assets and profits of the firm. Assuming that implied goodwill is not to be recorded, what is the combined gain realized by Newton and Sharman upon the sale of a portion of their interests in the partnership to Sidney? 

 $43,200

19

The following condensed balance sheet is presented for the partnership of Lever, Polen, and Quint, who share profits and losses in the ratio of 4:3:3, respectively:

Cash                         $90,000 

Other assets             830,000

Lever, loan                 20,000

                                940,000

Accounts payable     210,000

Quint, loan                 30,000

Lever, capital            310,000

Polen, capital           200,000  

Quint, capital             190,000

                                $940,000

Assume that instead of admitting new partner, the partners decide to liquidate the partnership. If the other assets are sold for $700,000, how much of the available cash should be distributed to Lever? 

$238,000

20

At December 31, year I, Arno and Dey are partners with capital balances of $80,000 and $40,000, and they share profit and loss in the ratio of 2: I, respectively. On this date West invests $36,000 cash for a one-fifth interest in the capital and profit of the new partnership. The partners agree that the implied partnership goodwill is to be recorded simultaneously with the admission of West. The total implied goodwill of the firm is

$24,000

21

Pat, Helma, and Diane are partners with capital balances of $50,000, $30,000, and $20,000, respectively. The partners share profits and losses equally.For an investment of $50,000 cash, MaryAnn is to be admitted as a partner with a one-fourth interest in capital and profits. Based on this information, the amount of MaryAnn's investment can best be justified by which of the following?

a. The book value of the partnership's net assets was less than their fair value immediately prior to MaryAnn's investment.

b. Assets of the partnership were overvalued immediately prior to MaryAnn's investment.

c. MaryAnn is apparently bringing goodwill into the partnership and her capital account will be credited for the appropriate amount.

d. MaryAnn will receive a bonus from the other partners upon her admission to the partnership.

The book value of the partnership's net assets was less than their fair value immediately prior to MaryAnn's investment. 

22

At December 31, year I, Reed and Quinn are partners with capital balances of $40,000 and $20,000, and they share profit and loss in the ratio of 2: I, respectively. On this date Poe invests $17,000 cash for a one fifth interest in the capital and profit of the new partnership. Assuming that goodwill is not recorded, how much should be credited to Poe's capital account on December 31, year I? 

$15,400 

23

A partnership agreement specifies that 5% interest is to be paid on the weighted-average capital balance for each partner throughout the year. Abel had beginning capital balance of $100,000. Abel withdrew $30,000 cash on April I and on June I; Abel contributed land with a fair value of $50,000 to the partnership. No other events related to the capital count occurred throughout the year. How much interest should be credited to Abel's capital account? 

$5,333 

24

The following condensed balance sheet is presented for the partnership of Lever, Polen, and Quint, who share profits and losses in the ratio of 4:3:3, respectively:

Cash                         $90,000 

Other assets             830,000

Lever, loan                 20,000

                                940,000

Accounts payable     210,000

Quint, loan                 30,000

Lever, capital            310,000

Polen, capital           200,000  

Quint, capital             190,000

                                $940,000

Assume that the assets and liabilities are fairly valued on the balance sheet and that the partners decides to admit Fahn as a new partner, with a 20% interest.  No goodwill or bonus is to be recorded.  How much should Fahn contribute in cash and other assets? 

$175,000

25

Partners C and K share profits and losses equally after each has been credited in all circumstances with annual salary allowances of $15,000 and $12,000, respectively. Under this arrangement, C will benefit by $3,000 more than K in which of the following circumstances?

a. Only if the partnership has earnings of at least $3,000 for the year.

b. Only if the partnership has earnings of $27,000 or more for the year.

c. Only if the partnership does not incur loss for the year. 

d. In all earnings or loss situations.

In all earnings or loss situations.