Xavier and Yolonda 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 15%, salary allowances of $22,000 and $20,000 respectively, and the remainder equally. How much of the net income of $90,000 is allocated to Xavier?
Answer

$30,250

$47,750

$45,000

$42,250
2 points 
Question 2

Xavier and Yolonda 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 income of $40,000 is allocated to Xavier?
Answer

$20,000

$22,000

$32,000

$0
2 points 
Question 3

Which of the following below is not one of the four major forms of business entities that are discussed in this chapter?
Answer

Sole proprietorship

Corporation

Partnership

Subchapter S corporation
2 points 
Question 4

When an additional partner is admitted to a partnership by contribution of assets to the partnership
Answer

the total assets of the partnership do not change

no liabilities can be contributed at the same time

the amount of the cash contribution is the same as the amount of the debit to the new partner’s capital account

the total of the owner’s equity accounts increases
2 points 
Question 5

When a partnership is formed, assets contributed by the partners should be recorded on the partnership books at their
Answer

book values on the partners’ books prior to their being contributed to the partnership

fair market value at the time of the contribution

original costs to the partner contributing them

assessed values for property purposes
2 points 
Question 6

When a new partner is admitted to a partnership, there should be a(n)
Answer

revaluation of assets

realization of assets

allocation of assets

return of assets
2 points 
Question 7

Use the following information to answer the following questions.

Izabelle and Marta are forming a partnership. Izabelle will invest a piece of equipment with a book value of $5,000 and a fair market value of $15,000. Marta will invest a building with a book value of $30,000 and a fair market value of $35,000.

At what amount will Marta’s capital account be recorded?
Answer

$50,000

$15,000

$30,000

$35,000
2 points 
Question 8

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’ capital balance after closing Income Summary to Capital?
Answer

$102,500

$22,500

$57,500

$127,500
2 points 
Question 9

The remaining cash of a partnership (after creditors have been paid) upon liquidation is divided among partners according to their
Answer

capital balances

contribution of assets

drawing balances

income sharing ratio
2 points 
Question 10

The characteristic of a partnership that gives the authority to any partner to legally bind the partnership and all other partners to business contracts is called
Answer

unlimited liability

ease of formation

mutual agency

dissolution
2 points 
Question 11

The balance sheet of Morgan and Rockwell was as follows immediately prior to the partnership’s being liquidated: cash, $20,000; other assets, $160,000; liabilities, $40,000; Morgan capital, $60,000; Rockwell capital, $80,000. The other assets were sold for $139,000. Morgan and Rockwell share profits and losses in a 2:1 ratio. As a final cash distribution from the liquidation, Morgan will receive cash totaling
Answer

$46,000

$51,000

$60,000

$49,500
2 points 
Question 12

The Craig-Doran Partnership owns inventory that was purchased for $85,000, has a current replacement cost of $54,500, and is priced to sell for $98,000. At what amount should the inventory be recorded in the accounts of the new partnership if Alexis is to be admitted?
Answer

$98,000

$54,500

$85,000

$79,167
2 points 
Question 13

Soledad and Winston are partners who share income in the ratio of 1:3 and have capital balances of $100,000 and $140,000 at the time they decide to terminate the partnership. After all noncash assets are sold and all liabilities are paid, there is a cash balance of $130,000. What amount of loss on realization should be allocated to Soledad?
Answer

$60,000

$27,500

$92,500

$32,500
2 points 
Question 14

Singer and McMann are partners in a business. Singer’s original capital was $40,000 and McMann’s was $60,000. They agree to salaries of $12,000 and $18,000 for Singer and McMann respectively and 10% interest on original capital. If they agree to share remaining profits and losses on a 3:2 ratio, what will Singer’s share of the income be if the income for the year was $50,000?
Answer

$24,000

$22,000

$16,000

$23,400
2 points 
Question 15

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
Answer

$0

$18,000

$8,000

$10,000
2 points 
Question 16

Radley and Smithers share income and losses in a 2:1 ratio after allowing for salaries to Radley of $24,000 and $30,000 to Smithers. Net income for the partnership is $48,000. Income should be divided as follows:
Answer

Radley, $24,000; Smithers, $24,000

Radley, $21,000; Smithers, $27,000

Radley, $32,000; Smithers, $16,000

Radley, $20,000; Smithers, $28,000
2 points 
Question 17

Partnership income and losses are usually divided on the basis of interest, salaries, and stated ratios because
Answer

partners seldom contribute time and resources equally

this method reflects the amount of time devoted to the partnership by the partners

it is simpler than following the legal rules

it prevents arguments among the partners
2 points 
Question 18

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
Answer

his capital account will be credited for more than the cash he invested

his capital account will be credited for the amount of cash he invested

a bonus will be credited for the amount of cash he invested

a bonus will be distributed to the old partners’ capital accounts.
2 points 
Question 19

Lambert invests $10,000 for a 1/3 interest in a partnership in which the other partners have capital totaling $26,000 before admitting Lambert. After distribution of the bonus, what is Lambert’s capital?
Answer

$12,000

$10,000

$8,667

$5,333
2 points 
Question 20

If there is no written agreement as to the way income will be divided among partners
Answer

they will share income and losses equally

they will share income and losses according to their capital balances

they will share income and losses according to the time devoted to the business.

there really is no partnership agreement
2 points 
Question 21

Douglas pays Selena $39,000 for her 30% interest in a partnership with total net assets of $105,000. Following this transaction, Selena’s capital account should have a credit balance of
Answer

$31,500

$39,000

$35,250

more than $39,000
2 points 
Question 22

A gain or loss on realization is divided among partners according to their
Answer

income sharing ratio

capital balances

drawing balances

contribution of assets
2 points 
Question 23

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
Answer

will increase

will decrease

will remain the same

may increase, decrease, or remain the same
2 points 
Question 24

A partnership liquidation occurs when
Answer

a new partner is admitted

a partner dies

the ownership interest of one partner is sold to a new partner

the assets are sold, liabilities paid, and business operations terminated
2 points 
Question 25

A ratio of 2:2:1 is the same as
Answer

20%:20%:10%

2/5:2/5:1/5

2/10:2/10:1/20

both (a) and (c)