TEST BANK FOR ACCOUNTING PARTNERSHIPS: FORMATION, OPERATION, AND CHANGES IN MEMBERSHIP

TEST BANK FOR ACCOUNTING PARTNERSHIPS: FORMATION, OPERATION, AND CHANGES IN MEMBERSHIP TEST BANK FOR ACCOUNTING Partnerships: Formation, Operation, and Changes in Membership Multiple Choice Questions 1. A partnership is a(n): I. accounting entity. II. taxable entity. A. I only B. II only C. Neither I nor II D. Both I and II 2. A partner's tax basis in a partnership is comprised of which of the following items? I. The partner's tax basis of assets contributed to the partnership. II. The amount of the partner's liabilities assumed by the other partners. III. The partner's share of other partners' liabilities assumed by the partnership. A. I plus II minus III B. I plus II plus III C. I minus II plus III D. I minus II minus III In the ABC partnership (to which Daniel seeks admittance), the capital balances of Albert, Bert, and Connell, who share income in the ratio of 5:3:2 are: 15-2 3. Based on the preceding information, if no goodwill or bonus is recorded, how much should Daniel invest for a 20 percent interest? A. $400,000 B. $200,000 C. $300,000 D. $250,000 15-3 4. Based on the preceding information, what amount of goodwill will be recorded if Daniel invests $450,000 for a one-third interest? A. $0 B. $10,000 C. $50,000 D. $100,000 Jones and Smith formed a partnership with each partner contributing the following items: Assume that for tax purposes Jones and Smith agree to share equally in the liabilities assumed by the Jones and Smith partnership. 5. Refer to the above information. What is each partner's tax basis in the Jones and Smith partnership? A. Option A B. Option B C. Option C D. Option D 15-4 6. Refer to the above information. What is the balance in each partner's capital account for financial accounting purposes? A. Option A B. Option B C. Option C D. Option D 7. Griffin and Rhodes formed a partnership on January 1, 2009. Griffin contributed cash of $120,000 and Rhodes contributed land with a fair value of $160,000. The partnership assumed the mortgage on the land which amounted to $40,000 on January 1. Rhodes originally paid $90,000 for the land. On July 31, 2009, the partnership sold the land for $190,000. Assuming Griffin and Rhodes share profits and losses equally, how much of the gain from sale of land should be credited to Griffin for financial accounting purposes? A. $0 B. $15,000 C. $35,000 D. $45,000 8. Which of the following accounts could be found in the general ledger of a partnership? A. Option A B. Option B C. Option C D. Option D 15-5 9. Which of the following accounts could be found in the PQ partnership's general ledger? I. Due from P II. P, Drawing III. Loan Payable to Q A. I, II B. I, III C. II, III D. I, II, and III 10. The DEF partnership reported net income of $130,000 for the year ended December 31, 2008. According to the partnership agreement, partnership profits and losses are to be distributed as follows: How should partnership net income for 2008 be allocated to D, E, and F? A. Option A B. Option B C. Option C D. Option D 15-6 11. The JPB partnership reported net income of $160,000 for the year ended December 31, 2008. According to the partnership agreement, partnership profits and losses are to be distributed as follows: How should partnership net income for 2008 be allocated to J, P, and B? A. Option A B. Option B C. Option C D. Option D The APB partnership agreement specifies that partnership net income be allocated as follows: Average capital balances for the current year were $50,000 for A, $30,000 for P, and $20,000 for B. 15-7 12. Refer to the information given. Assuming a current year net income of $150,000, what amount should be allocated to each partner? A. Option A B. Option B C. Option C D. Option D 13. Refer to the information given. Assuming a current year net income of $50,000, what amount should be allocated to each partner? A. Option A B. Option B C. Option C D. Option D 15-8 14. RD formed a partnership on February 10, 2009. R contributed cash of $150,000, while D contributed inventory with a fair value of $120,000. Due to R's expertise in selling, D agreed that R should have 60 percent of the total capital of the partnership. R and D agreed to recognize goodwill. What is the total capital of the RD partnership and the capital balance of R after the goodwill is recognized? A. Option A B. Option B C. Option C D. Option D 15. A joint venture may be organized as a: I. Partnership. II. Corporation. III. Undivided interest. A. I only B. II only C. I or III only D. I, II, or III 16. Refer to the above information. Which statement below is correct if a new partner receives a bonus upon contributing assets into the partnership? A. B A and D = C - A B. B A and D = C + A C. A = B and A = D + C D. B A and C = D + A 15-9 17. Refer to the above information. Which statement below is correct if the old partners receive a bonus upon the contribution of assets into the partnership by a new partner? A. B A and D = C - A B. B + A and D C + A C. B A and D = C + A D. B A and D = C + A 18. Refer to the above information. Which statement below is correct if goodwill of the old partners is recognized upon the contribution of assets into the partnership by a new partner? A. B = A and D C + A B. B = A and D C + A C. B A and D = C + A D. B A and D C + A 19. Refer to the above information. Which statement below is correct if a new partner purchases an interest in capital directly from the old partners? A. C D B. C = D C. C = D and B = A D. C D and B = A 20. Refer to the above information. Which statement below is correct if a new partner's goodwill is recognized upon contributing assets into the partnership? A. B = A and D C + A B. B A and D C + A C. B A and D = C + A D. B A and D C + A 21. When a partnership is formed, noncash assets contributed by partners should be recorded: I. at their respective book values for income tax purposes. II. at their respective fair values for financial accounting purposes. A. I only B. II only C. Both I and II D. Neither I nor II 15-10 22. When a new partner is admitted into a partnership and the new partner receives a capital credit less than the tangible assets contributed, which of the following explains the difference? I. The new partner's goodwill has been recognized. II. The old partners received a bonus from the new partner