9) The statement of partners’ equity reflects the equity of each partner and summarizes the allocation of
net income for the year.
10) Janie and Larry are partners, with beginning capital balances of $60,000 and $40,000 respectively.
During the year, Janie withdrew $10,000 and Larry withdrew $15,000. The year’s net income of $30,000
was distributed $10,000 to Janie and $20,000 to Larry. Prepare a statement of Partners’ equity.
17.4 Learning Objective 17-4
1) James wants to invest cash so that he will have a one-third interest in Thomas and Stanley’s company.
The capital balances are $2,000 Thomas, $6,000 Stanley. The admission of James would be to:
A) debit Cash $2,666.67; credit James, Capital $2,666.67.
B) debit Cash $5,333.33; credit James, Capital $5,333.33.
C) debit Cash $3,000; credit James, Capital $3,000.
D) debit Cash $4,000; credit James, Capital $4,000.
2) The Brad and Marcia partnership agree to admit Fred with a one-third interest for $5,000. Brad and
Marcia’s capital balances are $3,000, and $7,000, respectively, and they share profits and losses equally.
The entry to admit Brad would include:
A) debit Cash $5,000; credit Fred, Capital $5,000.
B) debit Cash $5,000; credit Brad, Capital $2000; debit Marcia, Capital $2000; credit Fred, Capital $5,000.
C) debit Cash $5,000; credit Brad, Capital $2,500; credit Marsha, Capital $2,500.
D) debit Cash $5,000; debit Brad, Capital $2,500; credit Marcia, Capital $2500; credit Fred, Capital $5,000.
3) When a partnership is worth more than the amounts recorded, an incoming partner may:
A) be required to pay a bonus to the other partners.
B) pay a smaller amount as an initial investment.
C) have to pay the same as other partners.
D) None of these answers are correct.
4) A bonus paid by an incoming partner to the old partners is shared:
A) equally.
B) by the salary method.
C) on the basis of profit and loss ratio.
D) by the interest method.
5) When recording a bonus to a new partner, the new partner will:
A) pay more than what the new partner’s account will reflect.
B) pay the same as the other partners’ capital accounts.
C) pay less than the new partner will receive in the capital account.
D) have no bonus recorded as a bonus cannot be paid to new partners.
6) A bonus is paid to the old partners when:
A) the old partner believes the business is worth less than the amounts recorded in the accounting
records.
B) the equity of a partnership is worth more than what is recorded in the accounting records.
C) the company’s earnings records are less than expected.
D) None of these answers are correct.
7) When a partner withdraws from a partnership, the company can:
A) audit the accounting records and adjust assets to historical value.
B) credit the account of the partner that withdrew, debit Cash.
C) share any loss or profit from the historical value of assets.
D) None of the above answers is correct.
8) Katie withdrew from the partnership of Katie, Courtney, and Nathan, and accepted $15,000 cash. Her
capital balance was $18,000 and the difference will be shared in a ratio of 2:1. The entry would be to:
A) debit Cash $15,000; credit Nathan, Capital $15,000.
B) debit Nathan, Capital $15,000; credit Cash $15,000.
C) debit Katie, Capital $18,000; credit Cash $15,000; credit Courtney, Capital $2,000; credit Nathan,
Capital $1,000.
D) debit Cash $15,000; debit Nathan, Capital $1,000; debit Courtney, Capital $2,000; credit Katie, Capital
$18,000.
9) An investment by a new partner was credited to existing partners’ capital balances. This error would
cause:
A) the new partner’s capital account to be understated.
B) the period end owner’s equity to be understated.
C) the period end assets to be overstated.
D) None of these are correct.
10) A partnership admits a new partner. The new partner invests $50,000 in the business and receives a
credit of $60,000 to his capital account. The difference of $10,000 is called a(n):
A) admission fee.
B) partnership expense.
C) bonus.
D) illegal activity.
11) When a partner withdraws, the partnership may have an audit to adjust the assets to their:
A) historic cost.
B) depreciated value.
C) fair market value.
D) book value.
12) Cory, Brooke, and Amy share profits and losses in a 2:1:1 ratio, respectively, in their partnership. The
assets are to be reduced $15,000 in value when Brooke wishes to leave the partnership. If each partner
had a capital balance of $30,000 before Brooke’s notification of withdrawal, what amount should Brooke
be allowed to withdraw from the partnership?
A) $25,000
B) $27,000
C) $26,250
D) $33,000
13) Tim and Bev are partners who share profits and losses in the ratio of 6:4. Their capital balances are
$35,000 and $20,000, respectively. If Jenny is admitted to the partnership for $25,000 for a one-fourth
interest, her capital balance will be:
A) $26,667.
B) $20,000.
C) $25,000.
D) $13,750.
14) Allan and Rick are partners who share profits and losses in the ratio of 3:2. They have capital balances
of $40,000 and $30,000, respectively. If Tammy invests $25,000 for one-third interest, Tammy’s capital
balance will be:
A) $25,000.
B) $23,750.
C) $31,667.
D) $21,667.
15) Nathan invests $2,000 for 10% interest in a partnership that has total capital of $15,000 after admitting
Nathan. Which of the following is true?
A) Nathan’s capital is $2,000.
B) The original partners received a bonus of $500.
C) Nathan received a bonus of $500.
D) The original partners‘ capital in the business was $13,500 before admitting Nathan.
16) Jane invests $8,000 for a one-fourth interest in a partnership in which the other partners have capital
totaling $16,000 before admitting Jane. After distribution of the bonus, Jane’s capital is:
A) $4,000.
B) $6,000.
C) $8,000.
D) $10,000.
17) Bill pays Steve $9,000 for his $7,000 interest in a partnership. On the partnership books:
A) Bill will have capital of $9,000.
B) Bill will have capital of $7,000.
C) Bill will have capital of $8,000.
D) None of these answers are correct.
18) Mindy and Heather are partners who have agreed to allow Carol to purchase Heather’s share for a
direct payment of $20,000 to Heather. Mindy and Heather’s previous capital balances were $8,000 and
$12,000, respectively. What will be the amount in Carol’s capital account?
A) $20,000
B) $8,000
C) $12,000
D) some other number
19) Track and Smith are partners sharing profits and losses in a 3:2 ratio. Their capital balances are
$10,000 and $20,000, respectively. The partners agree to admit Don for $10,000 for a 30% interest in the
partnership. Smith’s capital balance after admitting Don is:
A) $12,000.
B) $19,200.
C) $20,000.
D) $20,800.
20) When a partnership is dissolved:
A) it is implied that the business cannot form a different ownership structure.
B) it is implied that the business cannot continue with a new group of partners.
C) it is implied that it must be dissolved with any change in partnership structure.
D) it is implied that the business will halt operations.
21) “Limited life” in a partnership agreement means:
A) a partnership is limited in the amount of debt it is liable for in the course of the business.
B) a partnership is limited to the amount of revenue it can earn.
C) a partnership may be dissolved if the location of the business has changed.
D) a partnership may be dissolved as the result of any change in the ownership.
22) Bernstein is brought into the partnership. His capital is equal to his net that he brings to the
partnership. He brings assets of $167,000 and liabilities of $27,000. His capital balance will be:
A) $30,000 (cash invested).
B) $167,000 (total of all assets invested).
C) $140,000.
D) $137,000.
23) A partnership can be joined by:
A) investing into the business.
B) purchasing an equity interest in the business.
C) by buying out one of the partners and taking over their interest (by mutual agreement).
D) All of the above.
24) A partner may withdraw assets valued at more than book equity if:
A) the remaining partners are anxiously awaiting the partner’s retirement.
B) partnership assets are overvalued.
C) partnership assets are undervalued.
D) Both A and C
25) A new partner was admitted but the assets weren’t revalued. A revaluation would have decreased the
worth. This error would cause:
A) future period’s net income to be understated.
B) future period’s net income to be overstated.
C) this period end assets to be understated.
D) cash and capital to lower.
26) If the retiring partner’s interest is sold to one of the remaining partners, the retiring partner’s equity is
merely transferred to the other partner.
27) When the entity of a partnership is worth more than amounts recorded in the accounting records, an
incoming partner may have to pay a bonus.
28) When the assets are sold at a loss and one partner cannot make up the deficit, the other partners have
unlimited liability and must make up the deficit.
29) Amy and Beth’s partnership capital balances are $40,000 and $60,000, respectively. They share profits
and losses in a ratio of 1:3. Rockford is admitted to the partnership, invests $60,000 for a 40% interest, and
is awarded a bonus. Prepare the journal entry to admit Rockford to the partnership.
30) Dows and Sands’ partnership capital balances are $40,000 and $60,000, respectively. They share profits
and losses in a 1:3 ratio, respectively. Davis is admitted to the partnership and invests $60,000 for a one–
fourth interest, with a bonus to the old partners. Prepare the journal entry to admit Davis to the
partnership.
31) Sue and Jill, who have ending capital balances of $80,000 and $60,000 respectively, agree to admit two
new partners. Carlos will buy 1/4 of Sue’s interest for $20,000 and 1/3 of Jill’s interest for $25,000 directly
from the partners. Carmen will invest $30,000 for a $30,000 equity interest. Journalize the entry to admit
Carlos and Carmen.
17.5 Learning Objective 17-5
1) When a partnership is terminated, the assets are turned into cash and obligations are paid. This process
is called:
A) dissolution.
B) termination.
C) realization.
D) None of the above.
2) The first step take in liquidating a partnership is to:
A) sell the assets.
B) divide profits on assets with partners.
C) pay creditors.
D) distribute the remaining cash according to partners’ capital balances.
3) The sale of assets for liquidation purposes of a partnership is called:
A) a sheriff’s sale.
B) net profit.
C) net liquidation.
D) realization.
4) Partners Roger and Martin each have $3,000 capital balances and share income and losses in a 2:1 ratio,
respectively. Cash equals $1,000, noncash assets total $10,000, and liabilities are $5,000. If all the noncash
assets are sold for $7,000, Martin’s capital account will:
A) increase by $4,667.
B) decrease by $2,000.
C) decrease by $1,000.
D) increase by $2,333.
5) Partners Eric and Jeremy each have $3,000 capital balances and share income and losses in a 2:1 ratio,
respectively. Cash equals $1,000, noncash assets are $10,000, and liabilities are $5,000. If all the noncash
assets are sold for $4,000, and each partner is personally insolvent, Jeremy eventually will receive cash of:
A) $0.
B) $1,000.
C) $1,500.
D) $2,000.
6) Partners Ron and Sandra have $3,000 capital balances and share income and losses in a 2:1 ratio,
respectively. Cash equals $1,000, noncash assets are $10,000, and liabilities are $5,000. If all the noncash
assets are sold for $5,500, and each partner agrees to make up any capital deficits with personal cash
contributions, Sandra eventually will receive cash of:
A) $0.
B) $1,000.
C) $1,500.
D) $2,000.
7) Which of the following is an incorrect step in the process of partnership liquidation?
A) Pay any liabilities
B) Close all accounts payable
C) Allocate gains and losses to partners
D) Sell the assets
8) A partnership can be terminated by which of the following?
A) Bankruptcy
B) Death of a partner
C) Agreement by partners
D) All of the above
9) The first entry to liquidate a partnership would probably include:
A) debit to Cash; credit to individual assets sold.
B) debit to Cash; debit or credit to Loss or Gain from Realization; credit to individual assets sold.
C) debit to individual assets sold; credit to Cash.
D) None of the above.
10) When a partnership is liquidated, the journal entry to pay the claims of creditors would include:
A) a debit to Cash and a credit to each individual creditor.
B) a debit to each individual creditor and a credit to Cash.
C) a debit to each individual partner’s capital account.
D) a debit to each individual partner’s capital account and a credit to Cash.
11) When a partnership is liquidated, the assets are sold and the cash realized is applied first to the:
A) claims of creditors.
B) partner with the largest investment.
C) partners’ equity accounts.
D) partners according to their ownership interests.
12) The last step in a partnership liquidation is to divide any remaining proceeds between and among the
partners.
13) After all liabilities have been paid, the remaining assets are always distributed evenly.
14) A Loss or Gain from Realization account is credited when the assets are sold at a gain during the
liquidation process.
15) The partnership of Rick and Allan is being liquidated. All gains and losses are shared in a 3:5 ratio,
respectively. Before liquidation, their balance sheet balances are as follows:
Cash $10,000
Other Assets 8,000
Liabilities 4,000
Rick, Capital 7,000
Allan, Capital 7,000
If the Other Assets are sold for $10,000, how much will each partner receive upon liquidation?
16) The partnership of Brandon and Ryan is being liquidated. All gains and losses are shared in a 3:1
ratio, respectively. Before liquidation, their balance sheet balances are as follows:
Cash $10,000
Other Assets 8,000
Liabilities 4,000
Brandon, Capital 7,000
Ryan, Capital 7,000
a) If the Other Assets are sold for $10,000, how much will each partner receive before paying liabilities
and distributing the remaining assets?
b) If the Other Assets are sold for $8,000, how much will each partner receive before paying liabilities and
distributing remaining assets?
17) After several years of business, Abel, Barney, and Cole are liquidating. The following are post-closing
account balances.
Cash 18,000
Inventory 73,000
Other assets 157,000
Accounts Payable 61,000
Abel, Capital 50,000
Barney, Capital 50,000
Cole, Capital 87,000
Non-cash assets are sold for $275,000. Profits and losses are shared equally.
Record the sale of the noncash items.
18) After several years of business, Abel, Barney, and Cole are liquidating. The following are post-closing
account balances.
Cash 18,000
Inventory 73,000
Other assets 157,000
Accounts Payable 61,000
Abel, Capital 50,000
Barney, Capital 50,000
Cole, Capital 87,000
Non-cash assets are sold for $275,000. Profits and losses are shared equally.
Record the payment of the liabilities.
19) After several years of business, Abel, Barney, and Cole are liquidating. The following are post-closing
account balances.
Cash 18,000
Inventory 73,000
Other assets 157,000
Accounts Payable 61,000
Abel, Capital 50,000
Barney, Capital 50,000
Cole, Capital 87,000
Non-cash assets are sold for $275,000. Profits and losses are shared equally.
After all liabilities are paid, divide the remaining cash amongst the partners.
Given the following accounts:
[1] Cash
[2] Accounts receivable
[3] Allowance for doubtful accounts
[4] Merchandise inventory
[5] Store supplies
[6] Store equipment
[7] Accumulated depreciation
[8] Notes payable
[9] Accounts payable
[10] Able Partner’s Capital
[11] Baker Partner’s Capital
[12] Able Partner’s withdrawals
[13] Baker Partner’s withdrawals
[14] Income summary
[15] Service revenue
[16] Gain on realization
[17] Loss on realization
Indicate the account(s) to be debited and credited to record the following transactions.
20) Able partner invested cash in the business.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
21) Able accepted Baker into the partnership with an investment of cash, inventory, and store equipment,
including accumulated depreciation.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
22) The business paid an account.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
23) The business bought store equipment on account.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
24) Closed the income summary to the partners’ accounts with a net income.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
25) The business provided services on credit.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
26) Closed the income summary, there is a net loss.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
27) Able partner withdrew cash from the business.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
28) Closed Baker Partner’s withdrawals.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
29) During liquidation realized less than book value for the store equipment.
Debit ________ & ________ & ________ Credit ________ & ________ & ________
30) During liquidation realized more than book value for the merchandise inventory.
Debit ________ & ________ & ________ Credit ________ & ________ & ________