CH 15 Partnerships Formation Operation and Changes in Membership 1

Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
Chapter 15
Partnerships: Formation, Operation, and Changes in Membership

Multiple Choice Questions

1. A partnership is a(n):
I. acconting entit!.
II. ta"ab#e entit!.
A. I on#!
$. II on#!
C. %either I nor II
&. $oth I and II

'. A partner(s ta" basis in a partnership is comprised o) *hich o) the )o##o*ing items+
I. ,he partner(s ta" basis o) assets contribted to the partnership.
II. ,he amont o) the partner(s #iabi#ities assmed b! the other partners.
III. ,he partner(s share o) other partners( #iabi#ities assmed b! the partnership.
A. I p#s II mins III
$. I p#s II p#s III
C. I mins II p#s III
&. I mins II mins III

In the A$C partnership (to *hich &anie# see-s admittance), the capita# ba#ances o) A#bert,
$ert, and Conne##, *ho share income in the ratio o) 5:.:' are:

.. $ased on the preceding in)ormation, i) no good*i## or bons is recorded, ho* mch sho#d
&anie# in/est )or a '0 percent interest+
A. 1200,000
$. 1'00,000
C. 1.00,000
&. 1'50,000

15-1
2. $ased on the preceding in)ormation, *hat amont o) good*i## *i## be recorded i) &anie#
in/ests 1250,000 )or a one-third interest+
A. 10
$. 110,000
C. 150,000
&. 1100,000

3ones and 4mith )ormed a partnership *ith each partner contribting the )o##o*ing items:

Assme that )or ta" prposes 3ones and 4mith agree to share e5a##! in the #iabi#ities assmed
b! the 3ones and 4mith partnership.

5. 6e)er to the abo/e in)ormation. 7hat is each partner(s ta" basis in the 3ones and 4mith
partnership+

A. Option A
$. Option $
C. Option C
&. Option &

15-'
8. 6e)er to the abo/e in)ormation. 7hat is the ba#ance in each partner(s capita# accont )or
)inancia# acconting prposes+

A. Option A
$. Option $
C. Option C
&. Option &

9. :ri))in and 6hodes )ormed a partnership on 3anar! 1, '00;. :ri))in contribted cash o)
11'0,000 and 6hodes contribted #and *ith a )air /a#e o) 1180,000. ,he partnership
assmed the mortgage on the #and *hich amonted to 120,000 on 3anar! 1. 6hodes
origina##! paid 1;0,000 )or the #and. On 3#! .1, '00;, the partnership so#d the #and )or
11;0,000. Assming :ri))in and 6hodes share pro)its and #osses e5a##!, ho* mch o) the
gain )rom sa#e o) #and sho#d be credited to :ri))in )or )inancia# acconting prposes+
A. 10
$. 115,000
C. 1.5,000
&. 125,000

<. 7hich o) the )o##o*ing acconts co#d be )ond in the genera# #edger o) a partnership+

A. Option A
$. Option $
C. Option C
&. Option &

15-.
;. 7hich o) the )o##o*ing acconts co#d be )ond in the P= partnership(s genera# #edger+
I. &e )rom P
II. P, &ra*ing
III. >oan Pa!ab#e to =
A. I, II
$. I, III
C. II, III
&. I, II, and III

10. ,he &?F partnership reported net income o) 11.0,000 )or the !ear ended &ecember .1,
'00<. According to the partnership agreement, partnership pro)its and #osses are to be
distribted as )o##o*s:

@o* sho#d partnership net income )or '00< be a##ocated to &, ?, and F+

A. Option A
$. Option $
C. Option C
&. Option &

15-2
11. ,he 3P$ partnership reported net income o) 1180,000 )or the !ear ended &ecember .1,

@o* sho#d partnership net income )or '00< be a##ocated to 3, P, and $+

A. Option A
$. Option $
C. Option C
&. Option &

,he AP$ partnership agreement speci)ies that partnership net income be a##ocated as )o##o*s:

A/erage capita# ba#ances )or the crrent !ear *ere 150,000 )or A, 1.0,000 )or P, and 1'0,000
)or $.

15-5
1'. 6e)er to the in)ormation gi/en. Assming a crrent !ear net income o) 1150,000, *hat
amont sho#d be a##ocated to each partner+

A. Option A
$. Option $
C. Option C
&. Option &

1.. 6e)er to the in)ormation gi/en. Assming a crrent !ear net income o) 150,000, *hat

A. Option A
$. Option $
C. Option C
&. Option &

15-8
12. 6& )ormed a partnership on Febrar! 10, '00;. 6 contribted cash o) 1150,000, *hi#e &
contribted in/entor! *ith a )air /a#e o) 11'0,000. &e to 6(s e"pertise in se##ing, & agreed
that 6 sho#d ha/e 80 percent o) the tota# capita# o) the partnership. 6 and & agreed to
recogniAe good*i##. 7hat is the tota# capita# o) the 6& partnership and the capita# ba#ance o)
6 a)ter the good*i## is recogniAed+

A. Option A
$. Option $
C. Option C
&. Option &

15. A Boint /entre ma! be organiAed as a:
I. Partnership.
II. Corporation.
III. Cndi/ided interest.
A. I on#!
$. II on#!
C. I or III on#!
&. I, II, or III

18. 6e)er to the abo/e in)ormation. 7hich statement be#o* is correct i) a ne* partner recei/es
a bons pon contribting assets into the partnership+
A. $ D A and & E C - A
$. $ F A and & E C G A
C. A E $ and A E & G C
&. $ F A and C E & G A

15-9
19. 6e)er to the abo/e in)ormation. 7hich statement be#o* is correct i) the o#d partners
recei/e a bons pon the contribtion o) assets into the partnership b! a ne* partner+
$. $ G A and & F C G A
C. $ D A and & E C G A
&. $ F A and & E C G A

1<. 6e)er to the abo/e in)ormation. 7hich statement be#o* is correct i) good*i## o) the o#d
partners is recogniAed pon the contribtion o) assets into the partnership b! a ne* partner+
A. $ E A and & D C G A
$. $ E A and & F C G A
&. $ F A and & D C G A

1;. 6e)er to the abo/e in)ormation. 7hich statement be#o* is correct i) a ne* partner
prchases an interest in capita# direct#! )rom the o#d partners+
A. C D &
$. C E &
C. C E & and $ E A
&. C D & and $ E A

'0. 6e)er to the abo/e in)ormation. 7hich statement be#o* is correct i) a ne* partner(s
good*i## is recogniAed pon contribting assets into the partnership+
A. $ E A and & F C G A
$. $ D A and & D C G A
C. $ F A and & E C G A
&. $ F A and & F C G A

'1. 7hen a partnership is )ormed, noncash assets contribted b! partners sho#d be recorded:
I. at their respecti/e boo- /a#es )or income ta" prposes.
II. at their respecti/e )air /a#es )or )inancia# acconting prposes.
A. I on#!
$. II on#!
C. $oth I and II
&. %either I nor II

15-<
''. 7hen a ne* partner is admitted into a partnership and the ne* partner recei/es a capita#
credit #ess than the tangib#e assets contribted, *hich o) the )o##o*ing e"p#ains the di))erence+
I. ,he ne* partner(s good*i## has been recogniAed.
II. ,he o#d partners recei/ed a bons )rom the ne* partner.
A. I on#!
$. II on#!
C. ?ither I or II
&. %either I nor II

'.. 7hen a ne* partner is admitted into a partnership and the ne* partner recei/es a capita#
credit greater than the tangib#e assets contribted, *hich o) the )o##o*ing e"p#ains the
di))erence+
I. ,he o#d partners( good*i## is being recogniAed.
II. ,he ne* partner(s good*i## is being recogniAed.
A. I on#!
$. II on#!
C. ?ither I or II
&. $oth I and II

'2. 7hen a ne* partner is admitted into a partnership and the capita# o) the o#d partners
decreases, *hich o) the )o##o*ing e"p#ains the reason )or the decrease+
I. Cnder/a#ed #iabi#ities *ere *ritten p to their )air /a#es.
II. Cnder/a#ed assets *ere *ritten p to their )air /a#es.
A. I on#!
$. II on#!
C. $oth I and II
&. %either I nor II

'5. 7hen a partner retires )rom a partnership and the retiring partner is paid more than the
capita# ba#ance in her accont, *hich o) the )o##o*ing e"p#ains the di))erence+
I. ,he retiring partner is recei/ing a bons )rom the other partners.
II. ,he retiring partner(s good*i## is being recogniAed.
A. I on#!
$. II on#!
C. ?ither I or II
&. %either I nor II

15-;
'8. 7hen the o#d partners recei/e a bons pon admission o) a ne* partner into a partnership,
the bons is a##ocated to:
I. a## the partners in their pro)it and #oss sharing ratio.
II. the e"isting partners in their pro)it and #oss sharing ratio.
A. I on#!
$. II on#!
C. ?ither I or II
&. %either I nor II

'9. 7hen a ne* partner is admitted into a partnership and the o#d partners( good*i## is
recogniAed, the good*i## is a##ocated to:
I. a## the partners in their pro)it-and-#oss-sharing ratio.
II. the o#d partners in their pro)it and #oss sharing ratio.
A. I on#!
$. II on#!
C. ?ither I or II
&. %either I nor II

In the 64, partnership, 6on(s capita# is 1<0,000, 4te##a(s is 195,000, and ,i))an!(s is 150,000.
,he! share income in a .:':1 ratio, respecti/e#!. ,i))an! is retiring )rom the partnership. ?ach
o) the )o##o*ing 5estions is independent o) the others.

'<. 6e)er to the abo/e in)ormation. ,i))an! is paid 180,000, and no good*i## is recorded. In
the Borna# entr! to record ,i))an!(s *ithdra*a#:
A. ,i))an!, Capita# *i## be credited )or 180,000.
$. 6on, Capita# *i## be debited )or 15,000.
C. 4te##a, Capita# *i## be debited )or 12,000.
&. Cash *i## be debited )or 180,000.

';. 6e)er to the abo/e in)ormation. ,i))an! is paid 180,000, and no good*i## is recorded.
7hat is the 6on(s capita# ba#ance a)ter ,i))an! *ithdra*s )rom the partnership+
A. 192,000
$. 191,000
C. 195,000
&. 1<8,000

15-10
.0. 6e)er to the abo/e in)ormation. ,i))an! is paid 158,000, and a## imp#ied good*i## is
recorded. 7hat is the tota# amont o) good*i## recorded+
A. 10
$. 18,000
C. 1.0,000
&. 1.8,000

In the A& partnership, A##en(s capita# is 1120,000 and &anie#(s is 120,000 and the! share
income in a .:1 ratio, respecti/e#!. ,he! decide to admit &a/id to the partnership. ?ach o) the
)o##o*ing 5estions is independent o) the others.

.1. 6e)er to the in)ormation pro/ided abo/e. 7hat amont *i## &a/id ha/e to in/est to gi/e
him one-)i)th percent interest in the capita# o) the partnership i) no good*i## or bons is
recorded+
A. 180,000
$. 1.8,000
C. 150,000
&. 125,000

.'. 6e)er to the in)ormation pro/ided abo/e. Assme that &a/id in/ests 150,000 )or a one-
)orth interest. :ood*i## is to be recorded. ,he Borna# to record &a/id(s admission into the
partnership *i## inc#de:
A. a credit to cash )or 150,000.
$. a debit to good*i## )or 19,500.
C. a credit to &a/id, Capita# )or 180,000.
&. a credit to &a/id, Capita# )or 150,000.

... 6e)er to the in)ormation pro/ided abo/e. A##en and &anie# agree that some o) the
in/entor! is obso#ete. ,he in/entor! accont is decreased be)ore &a/id is admitted. &a/id
in/ests 120,000 )or a one-)i)th interest. 7hat is the amont o) in/entor! *ritten do*n+
A. 12,000
$. 1'0,000
C. 115,000
&. 110,000

15-11
.2. 6e)er to the in)ormation pro/ided abo/e. A##en and &anie# agree that some o) the
in/ests 120,000 )or a one-)i)th interest. 7hat are the capita# ba#ances o) A##en and &anie# a)ter
&a/id is admitted into the partnership+

A. Option A
$. Option $
C. Option C
&. Option &

.5. 6e)er to the in)ormation pro/ided abo/e. &a/id direct#! prchases a one-)i)th interest b!
pa!ing A##en 1.2,000 and &anie# 110,000. ,he #and accont is increased be)ore &a/id is
admitted. $! *hat amont is the #and accont increased+
A. 120,000
$. 110,000
C. 1.8,000
&. 1'0,000

admitted. 7hat are the capita# ba#ances o) A##en and &anie# a)ter &a/id is admitted into the
partnership+

A. Option A
$. Option $
C. Option C
&. Option &

15-1'
.9. 6e)er to the in)ormation pro/ided abo/e. &a/id in/ests 120,000 )or a one-)i)th interest in
the tota# capita# o) 1''0,000. ,he Borna# to record &a/id(s admission into the partnership *i##
inc#de:
A. a credit to Cash )or 120,000.
$. a debit to A##en, Capita# )or 1.,000.
&. a credit to &anie#, Capita# )or 11,000.

.<. 6e)er to the in)ormation pro/ided abo/e. &a/id in/ests 120,000 )or a one-)i)th interest in
the tota# capita# o) 1''0,000. 7hat are the capita# ba#ances o) A##en and &anie# a)ter &a/id is
admitted into the partnership+

A. Option A
$. Option $
C. Option C
&. Option &

.;. 6e)er to the in)ormation pro/ided abo/e. &a/id in/ests 150,000 )or a one-)i)th interest.
7hat amont o) good*i## *i## be recorded+
A. 1'0,000
$. 12,000
C. 120,000
&. 115,000

20. 7hich o) the )o##o*ing obser/ations is tre o) an 4 corporation+
A. It e#ects to be ta"ed in the same manner as a corporation.
$. It does not ha/e the brden o) dob#e ta"ation o) corporate income.
C. Its shareho#ders ha/e persona# #iabi#it! )or the corporation(s ob#igations.
&. Its primar! income sorce sho#d be passi/e in/estments.

15-1.
21. A #imited #iabi#it! compan! (>>C):
I. is go/erned b! the #a*s o) the state in *hich it is )ormed.
II. pro/ides #iabi#it! protection to its in/estors.
III. does not o))er pass-throgh ta"ation bene)its o) partnerships.
A. $oth I and III.
$. III
C. $oth I and II
&. I, II, and II

2'. I) A is the tota# capita# o) a partnership be)ore the admission o) a ne* partner, $ is the tota#
capita# o) the partnership a)ter the admission o) the ne* partner, C is the amont o) the ne*
partner(s in/estment, and & is the amont o) capita# credited to the ne* partner, then there is:
A. good*i## to the ne* partner i) $ F (A G C) and & D C.
$. good*i## to the o#d partners i) $ E A G C and & F C.
C. a bons to the ne* partner i) $ E A G C and & F C.
&. neither bons nor good*i## i) $ F (A G C) and & F C.

2.. ,he terms o) a partnership agreement pro/ide that one o) the partners is to recei/e a sa#ar!
a##o*ance o) 1.0,000, p#s a bons o) '0 percent o) income a)ter dedction o) the bons and
the sa#ar! a##o*ance. I) income is 1150,000, the bons sho#d be:
A. 11<,000
$. 1'0,000
C. 1'2,000
&. 1.0,000

22. ,he partnership o) H and I shares pro)its and #osses in the ratio o) 80 percent to H and 20
percent to I. For the !ear '00<, partnership net income *as dob#e H(s *ithdra*a#s. Assme
H(s beginning capita# ba#ance *as 1<0,000, and ending capita# ba#ance (a)ter c#osing) *as
1120,000. Partnership net income )or the !ear *as:
A. 11'0,000.
$. 1.00,000.
C. 1500,000.
&. 1800,000.

15-12
25. 4he, a partner in the Financia# $ro-ers Partnership, has a .0 percent share in partnership
pro)its and #osses. 4he(s capita# accont had a net decrease o) 1100,000 dring '00<. &ring
'00<, 4he *ithdre* 1'20,000 as *ithdra*a#s and contribted e5ipment /a#ed at 150,000
to the partnership. 7hat *as the net income o) the Financia# $ro-ers Partnership )or '00<+
A. 18..,..2
$. 1288,888
C. 1.00,000
&. 11;0,000

28. ,rans)erab#e interest o) a partner inc#des a## o) the )o##o*ing e"cept:
A. the partner(s share o) the pro)its and #osses o) the partnership.
$. the right to recei/e distribtions.
C. the right to recei/e an! #i5idating distribtion.
&. the athorit! to transact an! o) the partnership(s bsiness operations.

Essay Questions

15-15
29. %et income )or >e/in-,om partnership )or '00; *as 11'5,000. >e/in and ,om ha/e
agreed to distribte partnership net income according to the )o##o*ing p#an:

Additiona# In)ormation )or '00; )o##o*s:
1. >e/in began the !ear *ith a capita# ba#ance o) 195,000.
'. ,om began the !ear *ith a capita# ba#ance o) 1100,000.
.. On March 1, >e/in in/ested an additiona# 1'5,000 into the partnership.
2. On October 1, ,om in/ested an additiona# 1'0,000 into the partnership.
5. ,hroghot '00;, each partner *ithdre* 1'00 per *ee- in anticipation o) partnership net
income. ,he partners agreed that these *ithdra*a#s are not to be inc#ded in the comptation
o) a/erage capita# ba#ances )or prposes o) income distribtions.
6e5ired:
a. Prepare a sched#e that disc#oses the distribtion o) partnership net income )or '00;. 4ho*
spporting comptations in good )orm.
b. Prepare the statement o) partners( capita# at &ecember .1, '00;.
c. @o* *o#d !or ans*er to part a change i) a## o) the pro/isions o) the income distribtion
p#an *ere the same e"cept that the sa#aries *ere 125,000 to >e/in and 180,000 to 3ac-+

15-18
2<. Pa# and 6a! se## msica# instrments throgh their partnership. ,o bring in additiona#
)nds and e"pertise, the! decide to admit 3anet to the partnership. Pa#(s capita# is 1200,000,
6a!(s capita# is 1'00,000, and the! share income in a ratio o) 9:., respecti/e#!.
6e5ired
6ecord 3anet(s admission )or each o) the )o##o*ing independent sitations:
a) 3anet in/ests 11<0,000 )or a one-)orth interest. :ood*i## is to be recorded.
b) Pa# and 6a! agree that some o) the in/entor! is obso#ete. ,he in/entor! accont is
decreased be)ore 3anet is admitted. 3anet in/ests 11;0,000 )or a one-)orth interest.

15-19
2;. ,*o so#e proprietors, > and M, agreed to )orm a partnership on 3anar! 1, '00;. ,he tria#
ba#ance )or each proprietorship is sho*n be#o* as o) 3anar! 1, '00;.

,he >M partnership *i## ta-e o/er the assets and assme the #iabi#ities o) the proprietors as o)
3anar! 1, '00;.
6e5ired:
a) Prepare a ba#ance sheet, )or )inancia# acconting prposes, )or the >M partnership as o)
3anar! 1, '00;.
b) In addition, assme that M agreed to recogniAe the good*i## generated b! >(s bsiness.
According#!, M agreed to recogniAe an amont )or >(s good*i## sch that >(s capita# e5a##ed
M(s capita# on 3anar! 1, '00;. :i/en this a#ternati/e, ho* does the ba#ance sheet prepared
)or re5irement A change+

15-1<
50. ,he P= partnership has the )o##o*ing p#an )or the distribtion o) partnership net income
(#oss):

6e5ired:
Ca#c#ate the distribtion o) partnership net income (#oss) )or each independent sitation
be#o* ()or each sitation, assme the a/erage capita# ba#ance o) P is 1120,000 and o) = is
1'20,000).
1. Partnership net income is 1.80,000.
'. Partnership net income is 1'20,000.
.. Partnership net #oss is 120,000.

15-1;
51. Mi##er and &a/is, partners in a cons#ting bsiness, share pro)its and #osses in the ratio o)
.:', respecti/e#!. Prior to recording the admission o) 4ha* as a ne* partner, Mi##er has a
capita# ba#ance o) 1<0,000, and &a/is has a capita# ba#ance o) 120,000.
6e5ired:
For each o) the )o##o*ing independent cases, prepare the Borna# entr! that *as made to
record the admission o) 4ha* into the partnership.
1) 4ha* prchased '0 percent o) the respecti/e capita# ba#ances o) Mi##er and &a/is, pa!ing
1'0,000 cash direct#! to each o) them.
') 4ha* in/ested 1.0,000 cash in the partnership )or a '0 percent o*nership interest. ,ota#
capita# a)ter recording his admission *as 1150,000.
.) 4ha* in/ested 120,000 cash into the partnership )or a '0 percent o*nership interest. ,ota#
2) 4ha* in/ested 150,000 into the partnership )or a '0 percent interest. :ood*i## is to be
recogniAed.

5'. In the 3A7 partnership, 3ane(s capita# is 1100,000, Anne(s is 1<0,000, and 7i##iam(s is
195,000. ,he! share income in a .:':1 ratio, respecti/e#!. 7i##iam is retiring )rom the
partnership.
6e5ired
Prepare Borna# entries to record 7i##iam(s *ithdra*a# according to each o) the )o##o*ing
independent assmptions:
a. 7i##iam is paid 1<0,000, and no good*i## is recorded.
b. 7i##iam is paid 1<5,000, and on#! his share o) the good*i## is recorded.
c. 7i##iam is paid 19<,000, and a## imp#ied good*i## is recorded.

15-'0
5.. App#e and $ett! are p#anning on beginning a ne* bsiness. ,he! p#an on )orming a
partnership. App#e *i## contribte 1.00,000 and *i## not be *or-ing. $ett! *i## be *or-ing
)## time. ,he! p#an on sp#itting pro)its e5a##!. ,he! approach !o, as an acconting maBor,
to con)irm their thoghts. 7hat do !o recommend+

52. ,he A$C partnership had net income o) 1100,000 )or '00;. ,he! a##ocate pro)its and
#osses in the ratio 5:.:'. A)ter c#osing the 1'J.1J'00; boo-s the! disco/ered that 1.0,000 *as
spent on a piece o) #and in &ecember '00; and *as e"pensed. 7hat sho#d happen+

Chapter 15 Partnerships: Formation, Operation, and Changes in Membership
Ans*er Ke!

Multiple Choice Questions

1. A partnership is a(n):
I. acconting entit!.
II. ta"ab#e entit!.
A I on#!
$. II on#!
C. %either I nor II
&. $oth I and II

AACSB: Reflective Thinking
AICPA: Decision Making

15-'1
'. A partner(s ta" basis in a partnership is comprised o) *hich o) the )o##o*ing items+
I. ,he partner(s ta" basis o) assets contribted to the partnership.
II. ,he amont o) the partner(s #iabi#ities assmed b! the other partners.
III. ,he partner(s share o) other partners( #iabi#ities assmed b! the partnership.
A. I p#s II mins III
$. I p#s II p#s III
C I mins II p#s III
&. I mins II mins III


In the A$C partnership (to *hich &anie# see-s admittance), the capita# ba#ances o) A#bert,
$ert, and Conne##, *ho share income in the ratio o) 5:.:' are:

.. $ased on the preceding in)ormation, i) no good*i## or bons is recorded, ho* mch sho#d
&anie# in/est )or a '0 percent interest+
A. 1200,000
$. 1'00,000
C. 1.00,000
! 1'50,000

AACSB: Analytic

15-''
2. $ased on the preceding in)ormation, *hat amont o) good*i## *i## be recorded i) &anie#
in/ests 1250,000 )or a one-third interest+
A. 10
$. 110,000
C 150,000
&. 1100,000

AACSB: Analytic

3ones and 4mith )ormed a partnership *ith each partner contribting the )o##o*ing items:

Assme that )or ta" prposes 3ones and 4mith agree to share e5a##! in the #iabi#ities assmed
b! the 3ones and 4mith partnership.

5. 6e)er to the abo/e in)ormation. 7hat is each partner(s ta" basis in the 3ones and 4mith
partnership+

A Option A
$. Option $
C. Option C
&. Option &

AACSB: Analytic
AICPA: Measurement

15-'.
8. 6e)er to the abo/e in)ormation. 7hat is the ba#ance in each partner(s capita# accont )or
)inancia# acconting prposes+

A. Option A
$. Option $
C Option C
&. Option &

AACSB: Analytic
AICPA: Measurement

9. :ri))in and 6hodes )ormed a partnership on 3anar! 1, '00;. :ri))in contribted cash o)
11'0,000 and 6hodes contribted #and *ith a )air /a#e o) 1180,000. ,he partnership
assmed the mortgage on the #and *hich amonted to 120,000 on 3anar! 1. 6hodes
origina##! paid 1;0,000 )or the #and. On 3#! .1, '00;, the partnership so#d the #and )or
11;0,000. Assming :ri))in and 6hodes share pro)its and #osses e5a##!, ho* mch o) the
gain )rom sa#e o) #and sho#d be credited to :ri))in )or )inancia# acconting prposes+
A. 10
" 115,000
C. 1.5,000
&. 125,000

AACSB: Analytic

15-'2
<. 7hich o) the )o##o*ing acconts co#d be )ond in the genera# #edger o) a partnership+

A. Option A
$. Option $
C. Option C
! Option &


;. 7hich o) the )o##o*ing acconts co#d be )ond in the P= partnership(s genera# #edger+
I. &e )rom P
II. P, &ra*ing
III. >oan Pa!ab#e to =
A. I, II
$. I, III
C. II, III
! I, II, and III


15-'5
10. ,he &?F partnership reported net income o) 11.0,000 )or the !ear ended &ecember .1,

@o* sho#d partnership net income )or '00< be a##ocated to &, ?, and F+

A. Option A
" Option $
C. Option C
&. Option &

AACSB: Analytic
AICPA: Measurement

15-'8
11. ,he 3P$ partnership reported net income o) 1180,000 )or the !ear ended &ecember .1,

@o* sho#d partnership net income )or '00< be a##ocated to 3, P, and $+

A. Option A
$. Option $
C Option C
&. Option &

AACSB: Analytic
AICPA: Measurement

,he AP$ partnership agreement speci)ies that partnership net income be a##ocated as )o##o*s:

A/erage capita# ba#ances )or the crrent !ear *ere 150,000 )or A, 1.0,000 )or P, and 1'0,000
)or $.

15-'9
1'. 6e)er to the in)ormation gi/en. Assming a crrent !ear net income o) 1150,000, *hat

A. Option A
" Option $
C. Option C
&. Option &

AACSB: Analytic
AICPA: Measurement

1.. 6e)er to the in)ormation gi/en. Assming a crrent !ear net income o) 150,000, *hat

A. Option A
$. Option $
C Option C
&. Option &

AACSB: Analytic
AICPA: Measurement

15-'<
12. 6& )ormed a partnership on Febrar! 10, '00;. 6 contribted cash o) 1150,000, *hi#e &
contribted in/entor! *ith a )air /a#e o) 11'0,000. &e to 6(s e"pertise in se##ing, & agreed
that 6 sho#d ha/e 80 percent o) the tota# capita# o) the partnership. 6 and & agreed to
recogniAe good*i##. 7hat is the tota# capita# o) the 6& partnership and the capita# ba#ance o)
6 a)ter the good*i## is recogniAed+

A. Option A
$. Option $
C Option C
&. Option &

AACSB: Analytic
AICPA: Measurement

15. A Boint /entre ma! be organiAed as a:
I. Partnership.
II. Corporation.
III. Cndi/ided interest.
A. I on#!
$. II on#!
C. I or III on#!
! I, II, or III

AACSB: Analytic
AICPA: Measurement

15-';
18. 6e)er to the abo/e in)ormation. 7hich statement be#o* is correct i) a ne* partner recei/es
a bons pon contribting assets into the partnership+
" $ F A and & E C G A
C. A E $ and A E & G C
&. $ F A and C E & G A

AACSB: Analytic

19. 6e)er to the abo/e in)ormation. 7hich statement be#o* is correct i) the o#d partners
recei/e a bons pon the contribtion o) assets into the partnership b! a ne* partner+
$. $ G A and & F C G A
C $ D A and & E C G A
&. $ F A and & E C G A

AACSB: Analytic

1<. 6e)er to the abo/e in)ormation. 7hich statement be#o* is correct i) good*i## o) the o#d
partners is recogniAed pon the contribtion o) assets into the partnership b! a ne* partner+
A. $ E A and & D C G A
" $ E A and & F C G A
&. $ F A and & D C G A

AACSB: Analytic

15-.0
1;. 6e)er to the abo/e in)ormation. 7hich statement be#o* is correct i) a ne* partner
prchases an interest in capita# direct#! )rom the o#d partners+
A. C D &
" C E &
C. C E & and $ E A
&. C D & and $ E A

AACSB: Analytic

'0. 6e)er to the abo/e in)ormation. 7hich statement be#o* is correct i) a ne* partner(s
good*i## is recogniAed pon contribting assets into the partnership+
A. $ E A and & F C G A
$. $ D A and & D C G A
C. $ F A and & E C G A
! $ F A and & F C G A

AACSB: Analytic

'1. 7hen a partnership is )ormed, noncash assets contribted b! partners sho#d be recorded:
I. at their respecti/e boo- /a#es )or income ta" prposes.
II. at their respecti/e )air /a#es )or )inancia# acconting prposes.
A. I on#!
$. II on#!
C $oth I and II
&. %either I nor II


15-.1
''. 7hen a ne* partner is admitted into a partnership and the ne* partner recei/es a capita#
credit #ess than the tangib#e assets contribted, *hich o) the )o##o*ing e"p#ains the di))erence+
I. ,he ne* partner(s good*i## has been recogniAed.
II. ,he o#d partners recei/ed a bons )rom the ne* partner.
A. I on#!
" II on#!
C. ?ither I or II
&. %either I nor II


'.. 7hen a ne* partner is admitted into a partnership and the ne* partner recei/es a capita#
credit greater than the tangib#e assets contribted, *hich o) the )o##o*ing e"p#ains the
di))erence+
I. ,he o#d partners( good*i## is being recogniAed.
II. ,he ne* partner(s good*i## is being recogniAed.
A. I on#!
" II on#!
C. ?ither I or II
&. $oth I and II


'2. 7hen a ne* partner is admitted into a partnership and the capita# o) the o#d partners
decreases, *hich o) the )o##o*ing e"p#ains the reason )or the decrease+
I. Cnder/a#ed #iabi#ities *ere *ritten p to their )air /a#es.
II. Cnder/a#ed assets *ere *ritten p to their )air /a#es.
A I on#!
$. II on#!
C. $oth I and II
&. %either I nor II


15-.'
'5. 7hen a partner retires )rom a partnership and the retiring partner is paid more than the
capita# ba#ance in her accont, *hich o) the )o##o*ing e"p#ains the di))erence+
I. ,he retiring partner is recei/ing a bons )rom the other partners.
II. ,he retiring partner(s good*i## is being recogniAed.
A. I on#!
$. II on#!
C ?ither I or II
&. %either I nor II


'8. 7hen the o#d partners recei/e a bons pon admission o) a ne* partner into a partnership,
the bons is a##ocated to:
I. a## the partners in their pro)it and #oss sharing ratio.
II. the e"isting partners in their pro)it and #oss sharing ratio.
A. I on#!
" II on#!
C. ?ither I or II
&. %either I nor II


'9. 7hen a ne* partner is admitted into a partnership and the o#d partners( good*i## is
recogniAed, the good*i## is a##ocated to:
I. a## the partners in their pro)it-and-#oss-sharing ratio.
II. the o#d partners in their pro)it and #oss sharing ratio.
A. I on#!
" II on#!
C. ?ither I or II
&. %either I nor II


15-..
In the 64, partnership, 6on(s capita# is 1<0,000, 4te##a(s is 195,000, and ,i))an!(s is 150,000.
,he! share income in a .:':1 ratio, respecti/e#!. ,i))an! is retiring )rom the partnership. ?ach
o) the )o##o*ing 5estions is independent o) the others.

'<. 6e)er to the abo/e in)ormation. ,i))an! is paid 180,000, and no good*i## is recorded. In
the Borna# entr! to record ,i))an!(s *ithdra*a#:
A. ,i))an!, Capita# *i## be credited )or 180,000.
$. 6on, Capita# *i## be debited )or 15,000.
C 4te##a, Capita# *i## be debited )or 12,000.
&. Cash *i## be debited )or 180,000.

AACSB: Analytic
AICPA: Measurement

';. 6e)er to the abo/e in)ormation. ,i))an! is paid 180,000, and no good*i## is recorded.
7hat is the 6on(s capita# ba#ance a)ter ,i))an! *ithdra*s )rom the partnership+
A 192,000
$. 191,000
C. 195,000
&. 1<8,000

AACSB: Analytic
AICPA: Measurement

.0. 6e)er to the abo/e in)ormation. ,i))an! is paid 158,000, and a## imp#ied good*i## is
recorded. 7hat is the tota# amont o) good*i## recorded+
A. 10
$. 18,000
C. 1.0,000
! 1.8,000

AACSB: Analytic
AICPA: Measurement

15-.2
In the A& partnership, A##en(s capita# is 1120,000 and &anie#(s is 120,000 and the! share
income in a .:1 ratio, respecti/e#!. ,he! decide to admit &a/id to the partnership. ?ach o) the
)o##o*ing 5estions is independent o) the others.

.1. 6e)er to the in)ormation pro/ided abo/e. 7hat amont *i## &a/id ha/e to in/est to gi/e
him one-)i)th percent interest in the capita# o) the partnership i) no good*i## or bons is
recorded+
A. 180,000
$. 1.8,000
C. 150,000
! 125,000

AACSB: Analytic
AICPA: Measurement

.'. 6e)er to the in)ormation pro/ided abo/e. Assme that &a/id in/ests 150,000 )or a one-
)orth interest. :ood*i## is to be recorded. ,he Borna# to record &a/id(s admission into the
partnership *i## inc#de:
A. a credit to cash )or 150,000.
$. a debit to good*i## )or 19,500.
C a credit to &a/id, Capita# )or 180,000.
&. a credit to &a/id, Capita# )or 150,000.

AACSB: Analytic
AICPA: Measurement

... 6e)er to the in)ormation pro/ided abo/e. A##en and &anie# agree that some o) the
in/ests 120,000 )or a one-)i)th interest. 7hat is the amont o) in/entor! *ritten do*n+
A. 12,000
" 1'0,000
C. 115,000
&. 110,000

AACSB: Analytic
AICPA: Measurement

15-.5
.2. 6e)er to the in)ormation pro/ided abo/e. A##en and &anie# agree that some o) the
in/ests 120,000 )or a one-)i)th interest. 7hat are the capita# ba#ances o) A##en and &anie# a)ter
&a/id is admitted into the partnership+

A. Option A
" Option $
C. Option C
&. Option &

AACSB: Analytic
AICPA: Measurement

admitted. $! *hat amont is the #and accont increased+
A 120,000
$. 110,000
C. 1.8,000
&. 1'0,000

AACSB: Analytic
AICPA: Measurement

15-.8
admitted. 7hat are the capita# ba#ances o) A##en and &anie# a)ter &a/id is admitted into the
partnership+

A. Option A
$. Option $
C Option C
&. Option &

AACSB: Analytic
AICPA: Measurement

.9. 6e)er to the in)ormation pro/ided abo/e. &a/id in/ests 120,000 )or a one-)i)th interest in
the tota# capita# o) 1''0,000. ,he Borna# to record &a/id(s admission into the partnership *i##
inc#de:
A. a credit to Cash )or 120,000.
" a debit to A##en, Capita# )or 1.,000.
&. a credit to &anie#, Capita# )or 11,000.

AACSB: Analytic
AICPA: Measurement

15-.9
.<. 6e)er to the in)ormation pro/ided abo/e. &a/id in/ests 120,000 )or a one-)i)th interest in
the tota# capita# o) 1''0,000. 7hat are the capita# ba#ances o) A##en and &anie# a)ter &a/id is
admitted into the partnership+

A. Option A
$. Option $
C. Option C
! Option &

AACSB: Analytic
AICPA: Measurement

.;. 6e)er to the in)ormation pro/ided abo/e. &a/id in/ests 150,000 )or a one-)i)th interest.
7hat amont o) good*i## *i## be recorded+
A 1'0,000
$. 12,000
C. 120,000
&. 115,000

AACSB: Analytic
AICPA: Measurement

20. 7hich o) the )o##o*ing obser/ations is tre o) an 4 corporation+
A. It e#ects to be ta"ed in the same manner as a corporation.
" It does not ha/e the brden o) dob#e ta"ation o) corporate income.
C. Its shareho#ders ha/e persona# #iabi#it! )or the corporation(s ob#igations.
&. Its primar! income sorce sho#d be passi/e in/estments.


15-.<
21. A #imited #iabi#it! compan! (>>C):
I. is go/erned b! the #a*s o) the state in *hich it is )ormed.
II. pro/ides #iabi#it! protection to its in/estors.
III. does not o))er pass-throgh ta"ation bene)its o) partnerships.
A. $oth I and III.
$. III
C $oth I and II
&. I, II, and II


2'. I) A is the tota# capita# o) a partnership be)ore the admission o) a ne* partner, $ is the tota#
capita# o) the partnership a)ter the admission o) the ne* partner, C is the amont o) the ne*
partner(s in/estment, and & is the amont o) capita# credited to the ne* partner, then there is:
A. good*i## to the ne* partner i) $ F (A G C) and & D C.
$. good*i## to the o#d partners i) $ E A G C and & F C.
C a bons to the ne* partner i) $ E A G C and & F C.
&. neither bons nor good*i## i) $ F (A G C) and & F C.


2.. ,he terms o) a partnership agreement pro/ide that one o) the partners is to recei/e a sa#ar!
a##o*ance o) 1.0,000, p#s a bons o) '0 percent o) income a)ter dedction o) the bons and
the sa#ar! a##o*ance. I) income is 1150,000, the bons sho#d be:
A. 11<,000
" 1'0,000
C. 1'2,000
&. 1.0,000

AACSB: Analytic
AICPA: Measurement

15-.;
22. ,he partnership o) H and I shares pro)its and #osses in the ratio o) 80 percent to H and 20
percent to I. For the !ear '00<, partnership net income *as dob#e H(s *ithdra*a#s. Assme
H(s beginning capita# ba#ance *as 1<0,000, and ending capita# ba#ance (a)ter c#osing) *as
1120,000. Partnership net income )or the !ear *as:
A. 11'0,000.
$. 1.00,000.
C. 1500,000.
! 1800,000.

AACSB: Analytic
AICPA: Measurement

25. 4he, a partner in the Financia# $ro-ers Partnership, has a .0 percent share in partnership
pro)its and #osses. 4he(s capita# accont had a net decrease o) 1100,000 dring '00<. &ring
'00<, 4he *ithdre* 1'20,000 as *ithdra*a#s and contribted e5ipment /a#ed at 150,000
to the partnership. 7hat *as the net income o) the Financia# $ro-ers Partnership )or '00<+
A. 18..,..2
$. 1288,888
C 1.00,000
&. 11;0,000

AACSB: Analytic
AICPA: Measurement

28. ,rans)erab#e interest o) a partner inc#des a## o) the )o##o*ing e"cept:
A. the partner(s share o) the pro)its and #osses o) the partnership.
$. the right to recei/e distribtions.
C. the right to recei/e an! #i5idating distribtion.
! the athorit! to transact an! o) the partnership(s bsiness operations.


Essay Questions

15-20
29. %et income )or >e/in-,om partnership )or '00; *as 11'5,000. >e/in and ,om ha/e
agreed to distribte partnership net income according to the )o##o*ing p#an:

Additiona# In)ormation )or '00; )o##o*s:
1. >e/in began the !ear *ith a capita# ba#ance o) 195,000.
'. ,om began the !ear *ith a capita# ba#ance o) 1100,000.
.. On March 1, >e/in in/ested an additiona# 1'5,000 into the partnership.
2. On October 1, ,om in/ested an additiona# 1'0,000 into the partnership.
5. ,hroghot '00;, each partner *ithdre* 1'00 per *ee- in anticipation o) partnership net
income. ,he partners agreed that these *ithdra*a#s are not to be inc#ded in the comptation
o) a/erage capita# ba#ances )or prposes o) income distribtions.
6e5ired:
a. Prepare a sched#e that disc#oses the distribtion o) partnership net income )or '00;. 4ho*
spporting comptations in good )orm.
b. Prepare the statement o) partners( capita# at &ecember .1, '00;.
c. @o* *o#d !or ans*er to part a change i) a## o) the pro/isions o) the income distribtion
p#an *ere the same e"cept that the sa#aries *ere 125,000 to >e/in and 180,000 to 3ac-+
15-21
a)

15-2'

AACSB: Analytic
AICPA: Measurement

15-2.
2<. Pa# and 6a! se## msica# instrments throgh their partnership. ,o bring in additiona#
)nds and e"pertise, the! decide to admit 3anet to the partnership. Pa#(s capita# is 1200,000,
6a!(s capita# is 1'00,000, and the! share income in a ratio o) 9:., respecti/e#!.
6e5ired
6ecord 3anet(s admission )or each o) the )o##o*ing independent sitations:
a) 3anet in/ests 11<0,000 )or a one-)orth interest. :ood*i## is to be recorded.
b) Pa# and 6a! agree that some o) the in/entor! is obso#ete. ,he in/entor! accont is
decreased be)ore 3anet is admitted. 3anet in/ests 11;0,000 )or a one-)orth interest.
15-22

15-25

AACSB: Analytic
AICPA: Measurement

15-28
2;. ,*o so#e proprietors, > and M, agreed to )orm a partnership on 3anar! 1, '00;. ,he tria#
ba#ance )or each proprietorship is sho*n be#o* as o) 3anar! 1, '00;.

,he >M partnership *i## ta-e o/er the assets and assme the #iabi#ities o) the proprietors as o)
3anar! 1, '00;.
6e5ired:
a) Prepare a ba#ance sheet, )or )inancia# acconting prposes, )or the >M partnership as o)
3anar! 1, '00;.
b) In addition, assme that M agreed to recogniAe the good*i## generated b! >(s bsiness.
According#!, M agreed to recogniAe an amont )or >(s good*i## sch that >(s capita# e5a##ed
M(s capita# on 3anar! 1, '00;. :i/en this a#ternati/e, ho* does the ba#ance sheet prepared
)or re5irement A change+
15-29
a)

b) Assets change de to the addition o) good*i## o) 1.2,000. ,ota# assets are no* 11,1'<,000
(11,0;2,000 G 1.2,000 good*i##).
>, Capita# and M, Capita# are each 1';2,000 i) >(s good*i## is recogniAed. ,ota# capita# is
15<<,000, and tota# #iabi#ities and capita# amont to 11,1'<,000.

AACSB: Analytic
AICPA: Measurement

15-2<
50. ,he P= partnership has the )o##o*ing p#an )or the distribtion o) partnership net income
(#oss):

6e5ired:
Ca#c#ate the distribtion o) partnership net income (#oss) )or each independent sitation
be#o* ()or each sitation, assme the a/erage capita# ba#ance o) P is 1120,000 and o) = is
1'20,000).
1. Partnership net income is 1.80,000.
'. Partnership net income is 1'20,000.
.. Partnership net #oss is 120,000.
15-2;
4itation 1: %et income is 1.80,000

4itation ': %et income is 1'20,000

4itation .: %et #oss is 120,000

AACSB: Analytic
AICPA: Measurement

15-50
51. Mi##er and &a/is, partners in a cons#ting bsiness, share pro)its and #osses in the ratio o)
.:', respecti/e#!. Prior to recording the admission o) 4ha* as a ne* partner, Mi##er has a
capita# ba#ance o) 1<0,000, and &a/is has a capita# ba#ance o) 120,000.
6e5ired:
For each o) the )o##o*ing independent cases, prepare the Borna# entr! that *as made to
record the admission o) 4ha* into the partnership.
1) 4ha* prchased '0 percent o) the respecti/e capita# ba#ances o) Mi##er and &a/is, pa!ing
1'0,000 cash direct#! to each o) them.
') 4ha* in/ested 1.0,000 cash in the partnership )or a '0 percent o*nership interest. ,ota#
.) 4ha* in/ested 120,000 cash into the partnership )or a '0 percent o*nership interest. ,ota#
2) 4ha* in/ested 150,000 into the partnership )or a '0 percent interest. :ood*i## is to be
recogniAed.

AACSB: Analytic
AICPA: Measurement

15-51
5'. In the 3A7 partnership, 3ane(s capita# is 1100,000, Anne(s is 1<0,000, and 7i##iam(s is
195,000. ,he! share income in a .:':1 ratio, respecti/e#!. 7i##iam is retiring )rom the
partnership.
6e5ired
Prepare Borna# entries to record 7i##iam(s *ithdra*a# according to each o) the )o##o*ing
independent assmptions:
a. 7i##iam is paid 1<0,000, and no good*i## is recorded.
b. 7i##iam is paid 1<5,000, and on#! his share o) the good*i## is recorded.
c. 7i##iam is paid 19<,000, and a## imp#ied good*i## is recorded.
15-5'

15-5.

AACSB: Analytic
AICPA: Measurement

5.. App#e and $ett! are p#anning on beginning a ne* bsiness. ,he! p#an on )orming a
partnership. App#e *i## contribte 1.00,000 and *i## not be *or-ing. $ett! *i## be *or-ing
)## time. ,he! p#an on sp#itting pro)its e5a##!. ,he! approach !o, as an acconting maBor,
to con)irm their thoghts. 7hat do !o recommend+
4tdents sho#d recogniAe that partners can agree to an! )orm o) pro)it a##ocation. @o*e/er,
since one partner, App#e, has contribted mone! and $ett! hasn(t, the! might *ant to consider
some )orm o) interest on the capita# ba#ance. A#so, since one partner, $ett!, is *or-ing )##
time, App#e is not, the! might *ant to consider ha/ing a sa#ar! or a bons opportnit! )or
App#e.

AACSB: Communication
AICPA: Critical Thinking

15-52
52. ,he A$C partnership had net income o) 1100,000 )or '00;. ,he! a##ocate pro)its and
#osses in the ratio 5:.:'. A)ter c#osing the 1'J.1J'00; boo-s the! disco/ered that 1.0,000 *as
spent on a piece o) #and in &ecember '00; and *as e"pensed. 7hat sho#d happen+
4ince the boo-s are c#osed then the correction mst be made against the capita# acconts. ,he
)o##o*ing Borna# entr! *o#d be made:

AACSB: Analytic
AICPA: Critical Thinking

15-55

CH 15 Partnerships Formation Operation and Changes in Membership 1

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CH 15 Partnerships Formation Operation and Changes in Membership 1

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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership

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