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Multiple Questions ( 5 )

42. Which one of the following would not be considered a disadvantage of the partnership form of
organization?
a. Limited life
b. Unlimited liability
c. Mutual agency
d. Ease of formation

58. Norton invests personally owned equipment, which originally cost $110,000 and has accumulated
depreciation of $30,000 in the Norton and Kennett partnership. Both partners agree that the fair market
value of the equipment was $60,000. The entry made by the partnership to record Norton's investment
should be
a. Equipment.............................................................................. 110,000
Accumulated DepreciationEquipment...................... 30,000
Norton, Capital.............................................................. 80,000
b. Equipment.............................................................................. 80,000
Norton, Capital.............................................................. 80,000
c. Equipment.............................................................................. 60,000
Loss on Purchase of Equipment............................................. 20,000
Accumulated DepreciationEquipment............................... 30,000
Norton, Capital.............................................................. 110,000
d. Equipment.............................................................................. 60,000
Norton, Capital.............................................................. 60,000

64. A partner invests into a partnership a building with an original cost of $90,000 and accumulated
depreciation of $40,000. This building has a $70,000 fair market value. As a result of the investment, the
partners capital account will be credited for
a. $70,000.
b. $50,000.
c. $90,000.
d. $120,000.

Partners Abel and Cain have capital balances in a partnership of $40,000 and $60,000, respectively. They agree
to share profits and losses as follows:
Abel Cain
As salaries $10,000 $12,000
As interest on capital at the beginning of the year 10% 10%
Remaining profits or losses 50% 50%

69. If income for the year was $50,000, what will be the distribution of income to Cain?
a. $23,000
b. $27,000
c. $20,000
d. $10,000

70. If income for the year was $30,000, what will be the distribution of income to Abel?
a. $13,000
b. $77,000
c. $10,000
d. $14,000

71. If net loss for the year was $2,000, what will be the distribution to Cain?
a. $12,000 income
1
b. $1,000 income
c. $1,000 loss
d. $2,000 loss

Use the following information for questions 115116.

Carley and Kingman are partners who share income and losses in the ratio of 3:2, respectively. On August 31,
their capital balances were: Carley, $175,000 and Kingman, $150,000. On that date, they agree to admit Lerner
as a partner with a one-third capital interest.
a
115. If Lerner invests $125,000 in the partnership, what is Carley's capital balance after Lerner's admittance?
a. $150,000
b. $158,333
c. $160,000
d. $175,000

a
116. If Lerner invests $200,000 in the partnership, what is Kingman's capital balance after Lerner's
admittance?
a. $175,000
b. $160,000
c. $157,500
d. $150,000

a
127. Which of the following is correct when admitting a new partner into an existing partnership?
Purchase of an Interest Admission by Investment
a. Total net assets unchanged unchanged
b. Total capital increased unchanged
c. Total net assets unchanged increased
d. Total capital unchanged unchanged

a
134. When a partner withdraws from the firm, which of the following reflects the correct partnership effects?
Payment from Payment from
Partners' Personal Assets Partnership Assets
a. Total net assets decreased decreased
b. Total capital decreased decreased
c. Total net assets unchanged decreased
d. Total capital unchanged unchanged

ANSWER FORM
Q:1 Q:2 Q:3 Q:4 Q:5 Q:6 Q:7 Q:8 Q : 9 Q : 10

SECOND Category : practical applications and analysis skills :


The aim from these questions is to asses the students ability to analyze
and comprehend Information In addition to his ability to apply the
Information in a practical way . .

Ex. 165
Hope & Crosby Co. reports net income of $34,000. The partnership agreement provides for annual salaries of
$24,000 for Hope and $15,000 for Crosby and interest allowances of $4,000 to Hope and $6,000 to Crosby.
Any remaining income or loss is to be shared 70% by Hope and 30% by Crosby.
Instructions
2
Compute the amount of net income distributed to each partner.
Solution 165 (8 min.)
Hope Crosby Total
Salary allowance $24,000 $15,000 $39,000
Interest allowance 4,000 6,000 10,000
Total salaries and interest 28,000 21,000 49,000
Remaining deficiency ($15,000)
Hope ($15,000 70%) (10,500)
Crosby ($15,000 30%) (4,500) (15,000)
Total division $17,500 $16,500 $34,000

Ex. 168
Prepare a partners' capital statement for Crestwood Company based on the following information.
Crest Wood
Beginning capital $30,000 $27,000
Drawings during year 15,000 8,000

Net income was $35,000, and the partners share income 60% to Crest and 40% to Wood.

Solution 168 (8 min.)


CRESTWOOD COMPANY
Partners' Capital Statement

Crest Wood Total


Beginning capital $30,000 $27,000 $57,000
Add: Net income 21,000 14,000 35,000
51,000 41,000 92,000
Less: Drawings 15,000 8,000 23,000
Ending capital $36,000 $33,000 $69,000

: . THIRD Category : Unfamiliar problems solving


The aim from these questions is to asses the students ability to use
the information he learned to solve unfamiliar problems which
. appear in life and the degree of intelligence to deal with it .

Ex. 171
The ODS Partnership is to be liquidated when the ledger shows the following:
Cash $ 50,000
Noncash Assets 200,000
Liabilities 50,000
Oslo, Capital 75,000
Decker, Capital 100,000
Silas, Capital 25,000

Oslo, Decker, and Silas' income ratios are 6:3:1, respectively.

Instructions
Prepare separate entries to record the liquidation of the partnership assuming that the noncash assets are sold for
$150,000 in cash.

3
Solution 171 (15 min.)
1. Cash.................................................................................................... 150,000
Loss on Realization............................................................................ 50,000
Noncash Assets......................................................................... 200,000

2. Oslo, Capital ($50,000 6/10).......................................................... 30,000


Decker, Capital ($50,000 3/10)....................................................... 15,000
Silas, Capital ($50,000 1/10).......................................................... 5,000
Loss on Realization................................................................... 50,000

3. Liabilities........................................................................................... 50,000
Cash........................................................................................... 50,000

4. Oslo, Capital ($75,000 $30,000)..................................................... 45,000


Decker, Capital ($100,000 $15,000)............................................... 85,000
Silas, Capital ($25,000 $5,000)....................................................... 20,000
Cash ($50,000 + $150,000 $50,000)...................................... 150,000
a
Ex. 174
The Howell and Parks Partnership has partner capital account balances as follows:
Howell, Capital $550,000
Parks, Capital 250,000

The partners share income and losses in the ratio of 60% to Howell and 40% to Parks.

Instructions
Prepare the journal entry on the books of the partnership to record the admission of Tyler as a new partner
under the following three independent circumstances.
1. Tyler pays $350,000 to Howell and $150,000 to Parks for one-half of each of their ownership interest in a
personal transaction.
2. Tyler invests $850,000 in the partnership for a one-third interest in partnership capital.
3. Tyler invests $175,000 in the partnership for a one-third interest in partnership capital.

a
Solution 174 (20 min.)
1. Howell, Capital............................................................................... 275,000
Parks, Capital.................................................................................. 125,000
Tyler, Capital.......................................................................... 400,000
(To record admission of Tyler by purchase)
Total net assets and total capital of the partnership do not change.

2. Cash................................................................................................. 850,000
Howell, Capital...................................................................... 180,000
Parks, Capital......................................................................... 120,000
Tyler, Capital.......................................................................... 550,000
(To record admission of Tyler and bonus to old partners)

Total capital of existing partnership $ 800,000


Investment by new partner, Tyler 850,000
4
Total capital of new partnership $1,650,000

Tyler's capital credit = $1,650,000 1/3 = $550,000


Tyler's investment $850,000
Tyler's capital credit 550,000
Bonus to old partners $300,000

Allocation to old partners


Howell (60% $300,000) $180,000
Parks (40% $300,000) 120,000
$300,000

3. Cash................................................................................................. 175,000
Howell, Capital............................................................................... 90,000
Parks, Capital.................................................................................. 60,000
Tyler, Capital.......................................................................... 325,000
(To record Tyler's admission and bonus)
a
Solution 174 (cont.)
Total capital of existing partnership $800,000
Investment by new partner, Tyler 175,000
Total capital of new partnership $975,000

Tyler's capital credit = $975,000 1/3 = $325,000


Bonus to Tyler ($325,000 $175,000) = $150,000
Reduction of old partners' capital
Howell ($150,000 60%) $ 90,000
Parks ($150,000 40%) 60,000
$150,000