Chapter 12: Accounting for Partnerships and Limited Liability Companies
61.
When a limited liability company is formed
a.
the partnership activities are limited
b.
all partners have limited liability
c.
some of the partners have limited liability
d.
none of the partners have limited liability
62.
Which of the following below is not one of the four major forms of business entities that are discussed in
this
chapter?
a.
sole proprietorship
b.
corporation
c.
partnership
d.
subchapter S corporation
63.
Which of the following below is not a characteristic of a limited liability company?
a.
unlimited life
b.
limited legal liability
c.
taxable
d.
moderate ability to raise capital
Chapter 12: Accounting for Partnerships and Limited Liability Companies
64.
When a partnership is formed, assets contributed by the partners should be recorded on the partnership books
at
their
a.
book values on the partners’ books prior to their being contributed to the partnership
b.
fair market value at the time of the contribution
c.
original costs to the partner contributing them
d.
assessed values for property tax purposes
65.
As part of the initial investment, Ray Blake contributes equipment that had originally cost $125,000 and on which
accumulated depreciation of $100,000 has been recorded. If similar equipment would cost $150,000 to replace
and
the partners agree on a valuation of $29,000 for the contributed equipment, what amount should be debited to
the
equipment account?
a. $29,000
b. $150,000
c. $125,000
d. $100,000
66.
Luke and John share income and losses in a 2:1 ratio after allowing for salaries to Luke of $48,000 and $60,000
to
John. Net income for the partnership is $93,000. Income should be divided as
a. Luke, $46,500; John, $46,500
b. Luke, $55,000; John, $38,000
c. Luke, $65,000; John, $28,000
d. Luke, $38,000; John, $55,000
Chapter 12: Accounting for Partnerships and Limited Liability Companies
67.
As part of the initial investment, Jackson contributes accounts receivable that had a balance of $22,500 in the
accounts of a sole proprietorship. Of this amount, $3,000 is deemed completely worthless. For the remaining
accounts, the partnership will establish a provision for possible future uncollectible accounts of $1,500. The
amount
debited to Accounts Receivable for the new partnership is
a. $18,000
b. $22,500
c. $21,000
d. $19,500
68.
Jordon and Heidi share income equally. For the current year, the partnership net income is $40,000. Jordon made
withdrawals of $14,000, and Heidi made withdrawals of $15,000. At the beginning of the year, the capital
account
balances were: Jordon, capital, $40,000; Heidi, capital, $58,000. Jordon’s capital account balance at the
end of the
year is
a. $68,000
b. $54,000
c. $74,000
d. $46,000
Chapter 12: Accounting for Partnerships and Limited Liability Companies
69.
Sadie and Sam share income equally. For the current year, the partnership net income is $40,000. Sadie made
withdrawals of $14,000, and Sam made withdrawals of $15,000. At the beginning of the year, the capital
account
balances were Sadie, capital, $42,000; Sam capital, $58,000. Sam’s capital account balance at the end
of the year
is
a. $78,000
b. $43,000
c. $63,000
d. $93,000
70.
Partnership income and losses are usually divided on the basis of interest, salaries, and stated ratios because
a.
partners seldom contribute time and resources equally
b.
this method reflects the amount of time devoted to the partnership by the partners
c.
it is simpler than following the legal rules
d.
it prevents arguments among the partners
71.
A ratio of 4:2:1 is the same as
a. 40%:20%:10%
b. 4/7:2/7:1/7
c. 4/10:2/10:1/20
d. 7/4:7/2:7/1
Chapter 12: Accounting for Partnerships and Limited Liability Companies
72.
Carrie and Callie form a partnership in which Carrie contributes $85,000 in assets and agrees to devote half time
to
the partnership. Callie contributed $50,000 in assets and agrees to devote full time to the partnership. If no
additional information is available, how will Carrie and Callie share in the division of income?
a. 5:8.5
b. 1:2
c. 1:1
d. 2:1
73.
Seth and Rachel have original investments of $50,000 and $100,000 respectively in a partnership. The articles
of
partnership include the following provisions regarding the division of net income: interest on original
investments at
15%; salary allowances of $24,000 and $20,000, respectively; and the remainder to be divided
equally. How much
of the net income of $90,000 is allocated to Seth?
a. $42,750
b. $47,750
c. $45,000
d. $43,250
74.
Seth and Beth have original investments of $50,000 and $100,000 respectively in a partnership. The articles of
partnership include the following provisions regarding the division of net income: interest on original investment
at
10%; salary allowances of $27,000 and $18,000, respectively; and the remainder to be divided equally. How
much
of the net income of $42,000 is allocated to Seth?
a. $20,000
b. $23,000
c. $32,000
d. $0
Chapter 12: Accounting for Partnerships and Limited Liability Companies
75.
Seth and Rachel have original investments of $50,000 and $100,000, respectively, in a partnership. The articles
of
partnership include the following provisions regarding the division of net income: interest on original
investment at
10%; salary allowances of $27,000 and $18,000, respectively; and the remainder divided equally.
How much of the
net loss of $16,000 is allocated to Seth?
a. $8,000
b. $6,000
c. $4,000
d. $16,000
76.
If there is no written agreement as to the way income will be divided among partners
a.
they will share income and losses equally
b.
they will share income and losses according to their capital balances
c.
they will share income and losses according to the time devoted to the business.
d.
there really is no partnership agreement
77.
Jefferson has a capital balance of $65,000 and devotes full time to the partnership. Washington has a
capital
balance of $45,000 and devotes half time to the partnership. If no other information is available
regarding
distributions, in what ratio is net income to be divided?
a. 6.5:4.5
b. 1:1
c. 4.5:6.5
d. 1:2
Chapter 12: Accounting for Partnerships and Limited Liability Companies
78.
Details of the division of net income for a partnership should be disclosed
a.
in the assets section of the balance sheet
b.
in the partners’ subsidiary ledger
c.
in the statement of cash flows
d.
in the partnership income statement
79.
Rex and Kelsey are partners who share income in the ratio of 3:2. Their capital balances are $95,000 and $140,000,
respectively. Income Summary has a credit balance of $40,000 after the second closing entry. What is Pia’s capital
balance after closing Income Summary to the capital accounts?
a. $71,000
b. $119,000
c. $146,000
d. $111,000
80.
Patty and Paul are partners who share income in the ratio of 3:2. Their capital balances are $90,000 and
$130,000,
respectively. Income Summary has a credit balance of $40,000 after the second closing entry. What
is Paul’s
capital balance after closing Income Summary to the capital accounts?
a. $120,000
b. $146,000
c. $164,000
d. $160,000
Chapter 12: Accounting for Partnerships and Limited Liability Companies
Use the information below to answer the questions that follow.
Isis and Kelsey are forming a partnership. Isis will invest a piece of equipment with a book value of $7,500 and a
fair market value of $18,000. Kelsey will invest a building with a book value of $40,000 and a fair market value
of $44,000.
81.
What amount will be recorded to the building account?
a. $24,000
b. $14,000
c. $40,000
d. $44,000
82.
What amount will be recorded to Isis’s capital account?
a. $18,000
b. $7,500
c. $25,500
d. $10,500
83.
What amount will be recorded to Kelsey’s capital account?
a. $14,000
b. $24,000
c. $40,000
d. $44,000
Chapter 12: Accounting for Partnerships and Limited Liability Companies
84.
Hannah Johnson contributed equipment, inventory, and $53,000 cash to the partnership. The equipment had a
book
value of $25,000 and a market value of $28,000. The inventory had a book value of $50,000, but only had a
market
value of $15,000 due to obsolescence. The partnership also assumed a $12,000 note payable owed by
Hannah that
was originally used to purchase the equipment.
What amount should be recorded to Hannah’s capital account?
a. $96,000
b. $84,000
c. $108,000
d. $116,000
85.
Henry Jones contributed equipment, inventory, and $44,000 cash to the partnership. The equipment had a book
value of $35,000 and market value of $28,000. The inventory had a book value of $25,000, but only had a
market
value of $12,000 due to obsolescence. The partnership also assumed a $15,000 note payable owed by
Henry that
was originally used to purchase the equipment.
What amount should be recorded to Henry’s capital account?
a. $104,000
b. $89,000
c. $69,000
d. $84,000
Chapter 12: Accounting for Partnerships and Limited Liability Companies
86.
Tanner and Teresa share income and losses in a 2:1 ratio after allowing for salaries to Tanner of
$42,000 and $60,000 to Teresa. Net income for the partnership is $132,000. Income should be
divided as follows:
a. Tanner, $57,000; Teresa, $75,000
b. Tanner, $58,000; Teresa, $74,000
c. Tanner, $75,000; Teresa, $57,000
d. Tanner, $62,000; Teresa, $70,000
87.
Carla and Eliza share income equally. For the current year, the partnership net income is $40,000. Carla made
withdrawals of $12,000 and Eliza made withdrawals of $21,000. At the beginning of the year, the capital account
balances were: Carla capital, $42,000; Eliza capital, $55,000. Eliza’s capital account balance at the end of the
year
is
a. $34,000
b. $54,000
c. $78,000
d. $75,000
88.
Xavier and Yolanda have original investments of $50,000 and $100,000, respectively, in a partnership. The
articles
of partnership include the following provisions regarding the division of net income: interest on original
investment at
20%; salary allowances of $27,000 and $18,000, respectively; and the remainder to be divided
equally. How much of the net income of $81,000 is allocated to Xavier?
a. $37,000
b. $40,000
c. $42,000
d. $42,500
Chapter 12: Accounting for Partnerships and Limited Liability Companies
89.
Xavier and Yolanda have original investments of $50,000 and $100,000, respectively, in a partnership. The
articles
of partnership include the following provisions regarding the division of net income: interest on original
investment at
20%; salary allowances of $34,000 and $26,000, respectively; and the remainder to be divided
equally. How much
of the net income of $120,000 is allocated to Yolanda?
a. $46,000
b. $61,000
c. $60,000
d. $66,000
90.
Xavier and Yolanda have original investments of $50,000 and $100,000, respectively, in a partnership. The
articles
of partnership include the following provisions regarding the division of net income: interest on original
investment at
20%; salary allowances of $34,000 and $26,000, respectively; and the remainder to be divided
equally. How much
of the net income of $120,000 is allocated to Xavier?
a. $59,000
b. $61,000
c. $49,000
d. $44,000
91.
Xavier and Yolanda have original investments of $50,000 and $100,000, respectively, in a partnership. The
articles
of partnership include the following provisions regarding the division of net income: interest on original
investment at
10%; salary allowances of $38,000 and $28,000, respectively; and the remainder to be divided
equally. How much of the net income of $77,000 is allocated to Yolanda?
a. $77,000
b. $38,000
c. $36,000
d. $44,000
Chapter 12: Accounting for Partnerships and Limited Liability Companies
92.
Xavier and Yolanda have original investments of $50,000 and $100,000, respectively, in a partnership. The
articles
of partnership include the following provisions regarding the division of net income: interest on original
investment at
10; salary allowances of $38,000 and $28,000, respectively; and the remainder to be divided
equally. How much of
the net income of $77,000 is allocated to Xavier?
a. $66,000
b. $41,000
c. $36,000
d. $43,000
93.
Xavier and Yolanda have original investments of $50,000 and $100,000 respectively in a partnership. The
articles
of partnership include the following provisions regarding the division of net income: interest on original
investment at
10%, salary allowances of $27,000 and $18,000 respectively, and the remainder equally. How
much of the net loss
of $6,000 is allocated to Yolanda?
a. $1,000
b. $3,000
c. $5,000
d. $0
94.
Tucker and Titus are partners who share income in the ratio of 3:1. Their capital balances are $40,000 and $60,000,
respectively. Income Summary has a credit balance of $40,000 after the second closing entry. What is Tucker’s
capital balance after closing Income Summary to the capital accounts?
a. $40,000
b. $70,000
c. $10,000
d. $80,000
Chapter 12: Accounting for Partnerships and Limited Liability Companies
95.
Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $80,000 and
$120,000, respectively. Income Summary has a credit balance of $30,000. What is Tomas’s capital balance after
closing Income Summary to the capital accounts?
a. $102,500
b. $22,500
c. $57,500
d. $127,500
96.
Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $80,000 and
$120,000, respectively. Income summary has a credit balance of $30,000 after the second closing entry. What is
Saturn’s capital balance after closing income summary to the capital accounts?
a. $102,500
b. $120,000
c. $112,500
d. $127,500
97.
Tomas and Saturn are partners who share income in the ratio of 3:1. Their capital balances are $40,000 and $60,000
respectively. Income summary has a credit balance of $20,000. What is Saturn’s capital balance after closing income
summary to capital?
a. $55,000
b. $75,000
c. $45,000
d. $65,000
Chapter 12: Accounting for Partnerships and Limited Liability Companies
98.
Franco and Jason share income and losses in a 2:1 ratio after allowing for salaries of $15,000 and $30,000. If the
partnership suffers a $15,000 loss, by how much would Jason’s capital account increase?
a. $10,000
b. $20,000
c. $40,000
d. $25,000
99.
Lambert invests $20,000 for a 1/3 interest in a partnership in which the other partners have capital totaling $34,000
before admitting Lambert. After distribution of the bonus, what is Lambert’s capital?
a. $18,000
b. $20,000
c. $6,667
d. $11,333
100.
Douglas pays Selena $45,000 for her 30% interest in a partnership with total net assets of $125,000. Following this
transaction, Douglas’ capital account should have a credit balance of
a. $37,500
b. $45,000
c. $13,500
d. more than $45,000
Chapter 12: Accounting for Partnerships and Limited Liability Companies
101.
Nick is admitted to an existing partnership by investing cash. Nick agrees to pay a bonus for his ownership interest
because of the past success of the partnership. When Nick’s investment in the partnership is recorded
a.
his capital account will be credited for more than the cash he invested
b.
his capital account will be credited for the amount of cash he invested
c.
a bonus will be credited for the amount of cash he invested
d.
a bonus will be distributed to the old partners’ capital accounts
102.
Bobbi and Stuart are partners. The partnership capital of Bobbi is $40,000 and Stuart is $70,000. Bobbi sells his
interest in the partnership to John for $50,000. The journal entry to record the admission of John as a new
partner
would include
a.
a credit to John’s capital account for $40,000
b.
a credit to Stuart’s capital account for $10,000
c.
a credit to John’s capital account for $50,000
d.
a credit to John’s capital account for $40,000 and a credit to Stuart’s capital account for $10,000
103.
When a partner dies, the capital account balances of the remaining partners
a.
will increase
b.
will decrease
c.
will remain the same
d.
may increase, decrease, or remain the same
Chapter 12: Accounting for Partnerships and Limited Liability Companies
104.
A partner withdraws from a partnership by selling her interest to another person who currently is not associated
with the firm. As a results of this transaction, the capital account balance of the other partners in the partnership
a.
will increase
b.
will decrease
c.
will remain the same
d.
may increase, decrease, or remain the same
105.
Samuel and Darci are partners. The partnership capital for Samuel is $50,000 and for Darci is $60,000. Josh is
admitted as a new partner by investing $50,000 cash. Josh is given a 20% interest in return for his investment.
The
amount of the bonus to the old partners is
a.
$0
b. $18,000
c. $8,000
d. $10,000
106.
Abby and Bailey are partners who share income in the ratio of 2:1 and have capital balances of $60,000 and
$30,000, respectively. With the consent of Bailey, Sandra buys one-half of Abby’s interest for $35,000. For
what
amount will Abby’s capital account be debited to record admission of Sandra to the partnership?
a. $40,000
b. $15,000
c. $35,000
d. $30,000
Chapter 12: Accounting for Partnerships and Limited Liability Companies
107.
A new partner may be admitted to a partnership by
a.
inheriting a partnership interest
b.
contributing assets to the partnership
c.
purchasing a specific quantity of assets from the partnership
d.
a written approval under the federal law
108.
A change in the ownership of a partnership results in the
a.
consolidating of the partnership
b.
liquidating of the partnership
c.
realization of the partnership
d.
dissolution of the partnership
109.
When a new partner is admitted to a partnership, there should be a(n)
a.
revaluation of assets
b.
realization of assets
c.
allocation of assets
d.
return of assets
Chapter 12: Accounting for Partnerships and Limited Liability Companies
110.
When a new partner is admitted to a partnership, there should be a(n)
a.
increase in the total assets of the partnership
b.
new capital account added to the ledger for the new partner
c.
increase in the total owner’s equity of the partnership
d.
debit amount to the partner’s capital account for the cash received by the current partner
111.
When an additional partner is admitted to a partnership by contribution of assets to the partnership
a.
the total assets of the partnership do not change
b.
no liabilities can be contributed at the same time
c.
the amount of the cash contribution is the same as the amount of the debit to the new partner’s capital
account
d.
the total of the owner’s equity accounts increases
112.
When a new partner is admitted to a partnership
a.
a bonus may be attributable to the old partner
b.
a bonus may only result from more cash being given by the new partner than the value of the assets
being
purchased
c.
a bonus agreed upon by the partners is recorded as an asset so long as the amount is within the range set by
the SEC
d.
a bonus is not recorded
Chapter 12: Accounting for Partnerships and Limited Liability Companies
113.
The Calvin-Dogwood Partnership owns inventory that was purchased for $90,000, has a current replacement cost
of $85,900, and is priced to sell for $125,000. At what amount should the inventory be recorded in the accounts
of
the new partnership if Alexis is to be admitted?
a. $129,100
b. $85,900
c. $90,000
d. $125,000
114.
Immediately prior to the admission of Abbott, the Smith-Jones Partnership assets had been adjusted to current
market prices, and the capital balances of Smith and Jones were $40,000 and $60,000, respectively. If the parties
agree that the business is worth $120,000, what is the amount of bonus that should be recognized in the accounts
at
the admission of Abbott?
a. $60,000
b. $80,000
c. $40,000
d. $20,000
115.
Benson and Orton are partners who share income in the ratio of 2:3 and have capital balances of $60,000 and
$40,000, respectively. Ramsey is admitted to the partnership and is given a 40% interest by investing $20,000. What
is Benson’s capital balance after admitting Ramsey?
a. $20,000
b. $24,000
c. $48,800
d. $71,200
Chapter 12: Accounting for Partnerships and Limited Liability Companies
116.
Benson and Orton are partners who share income in the ratio of 2:3 and have capital balances of $60,000 and
$40,000, respectively. Ramsey is admitted to the partnership and is given a 10% interest by investing $20,000. What
is Orton’s capital balance after admitting Ramsey?
a. $44,800
b. $35,200
c. $20,000
d. $16,000
117.
Benton and Orton are partners who share income in the ratio of 1:3 and have capital balances of $70,000 and
$30,000, respectively. Ramsey is admitted to the partnership and is given a 40% interest by investing $20,000. What
is Benton’s capital balance after admitting Ramsey?
a. $20,000
b. $7,000
c. $70,000
d. $63,000
118.
Benson and Orton are partners who share income in the ratio of 1:3 and have capital balances of $70,000 and
$30,000, respectively. Ramsey is admitted to the partnership and is given a 40% interest by investing $20,000. What
is Orton’s capital balance after admitting Ramsey?
a. $20,000
b. $9,000
c. $70,000
d. $63,000