COMPREHENSIVE EXAMINATION FOR PARTNERSHIP ACCOUNTING

MULTIPLE CHOICE - Conceptual

The first twenty number should be answered using the following:

A. Only the first statement is true.

B. Only the second statement is true.
C. Both statements are true.
D. Both statements are false.

1. A partnership has an unlimited life. F

A partnership is an unincorporated association of two or more people who agree to carry on
a business as co-owners for the purpose of earning profit. T

2. Mutual agency means each partner can commit/ bind the partnership to any contract within
the scope of the partnership business. T
Accounting procedures for all items are the same for both sole proprietorship and
partnership forms of businesses. F

3. Partners in a partnership are taxed on the amounts they withdraw from the partnership, not
the partnership income. F
A partnership cannot use salary allowances or interest allowances as a way of determining
profit share if the operation’s net income is insufficient to cover such allowances. F

4. A partnership cannot use salary allowances or interest allowances as a way of determining

profit share if the operation is a net loss. F
In a limited partnership the general partner has unlimited liability. T

5. Partner’s return on equity can be used by each partner to help decide whether additional
investment or withdrawal of resources is best for that partner. T
When partners invest in a partnership, their capital accounts are credited for the amount
invested and or permanently withdrawn. F

6. Partner’s regular cash withdrawal is credited to a separate withdrawal account. F

Partners can invest both assets and liabilities into a partnership. T

7. The withdrawal account of each partner may be closed to the capital account at the end of
the accounting period if the company is using the fluctuating capital method. T
 In closing the accounts at the end of a period, the partners' capital accounts are credited
for their share of the partnership loss or debited for their share of the partnership net
income. F

8. In the absence of a partnership agreement, the law says that income of a partnership will
be shared equally by the partners. F.
If partners devote their time and services to their partnership, their salaries are expensed
on the income statement. F

9. The statement of changes in partners' equity shows the beginning balance in the capital
and drawing account (if this was not closed), plus investments, less withdrawals, plus or
minus allocated income or loss resulting from the period’s operation. T
The equity section of the partnership’s statement of financial position may not report
separately the capital account balances of each partner. F

10. When a partner leaves a partnership, the present partnership ends T.

To buy a partner’s interest in an existing partnership, the new partner must contribute cash
to the partnership. F

11. When the current value of a partnership is greater than the recorded amounts of equity, the
current partners usually require a new partner to pay a bonus for the privilege of joining. T
When a partner leaves a partnership, the withdrawing partner is entitled to a bonus if the
recorded equity is understated. T

12. When a partnership is liquidated, its business is ended. T

A capital deficiency can arise from liquidation losses, excessive withdrawals before
liquidation, or recurring losses in prior periods. T

13. If at the time of partnership liquidation, a partner has a P5,000 capital deficiency which he
pays out of personal assets, then that partner is entitled to share in the final distribution of
cash. F
If a partner's investment in a partnership consists of equipment that has accumulated
depreciation of P8,000, it would not be appropriate for the partnership to record the
accumulated depreciation. T

14. If a partner's investment in a partnership consists of Accounts Receivable of P25,000 and

an Allowance for Doubtful Accounts of P7,000, it would not be appropriate for the
partnership to record the Allowance for Doubtful Accounts. F

If partnership agreement requires a 10% bonus to a managing partner, this should be given
whether the business operation resulted in a profit or a loss. F

15. If a partnership incurs a loss for the period, the closing entry to transfer the loss to the
partners will require a credit to the Income Summary account. T
 The income earned by a partnership will always be greater than the income earned by a
proprietorship because in a partnership there is more than one owner contributing to the
success of the business. F

16. The function of the Partners' Capital Statement is to explain the changes in partners' capital
account balances during a period. T
A detailed listing of all the assets invested by a partner in a partnership appears on the
Partners' Capital Statement. F

17. Total partners' equity of a partnership is equal to the sum of all partners' capital account
balances. T
The distribution of cash to partners in a partnership liquidation is always made based on the
partners' income sharing ratio. F

18. If a new partner is admitted into a partnership by investment, the total assets and total
capital will change. T
A bonus to old partners results when the new partner's capital credit on the date of
admittance is greater than his or her investment in the firm. F

19. If a new partner invests in a partnership at book value and acquires a 1/4 interest in total
partnership capital, it indicates that a bonus was paid to the original partners. F
A bonus to the remaining partners results when a retiring partner receives partnership
assets which are less than his or her capital balance on the date of withdrawal. T

20. In admission by investment, if total contributions are higher than total agreed equity, it may
be implied that assets are overstated requiring a downward adjustment. T
If capital credit for a new partner is higher than actual contribution made by the new
partner, the difference may be treated as a bonus or goodwill of the new partner. T

21. 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

22. The Metro Manila partnership owned by Mary and Cane is terminated when creditor claims
exceed partnership assets by P40,000. Partner Cane is a millionaire and Mary has no
personal assets. Mary’s' partnership interest is 75% and Cane's is 25%. Creditors

a. must collect their claims equally from Mary and Cane.

b. may collect the entire P40,000 from Cane.
c. must collect their claims 75% from Mary and 25% from Cane.
d. may not require Cane to use his personal assets to satisfy the P40,000 in claims.

23. Which of the following statements about partnerships is incorrect?

a. Partnership assets are co-owned by partners.

 b. If a partnership is terminated, the assets do not legally revert to the original contributor.
c. Right over profits and right over assets represent claims of partners that are
allocated based on partners’ capital accounts.
d. The industrial partner does not share in the losses of the partnership.

24. In the absence of a partnership agreement, the law says that income (and loss) should be
allocated based on:
a. Interest allowances
b. The ratio of capital investments.
c. Salary allowances.
d. Equal shares.

25. A loan due from a partner is classified in the statement of financial position as a/an

a. current liability
b. current assets
c. partners’ equity
d. as a disclosure.

26. In the liquidation of a partnership, any gain or loss on the realization of noncash assets
should be allocated

a. first to creditors and the remainder to partners.

b. to the partners on the basis of their capital balances.
c. to the partners on the basis of their income-sharing ratio.
d. only after all creditors have been paid.

27. In the liquidation of a partnership, any partner who has a capital deficiency

a. has a personal debt to the partnership for the amount of the deficiency.
b. is automatically terminated as a partner.
c. will receive a cash distribution only on the basis of his or her income-sharing ratio.
d. it may be written off to a “Loss” account

28. Before distributing any remaining cash to partners in a partnership liquidation, it is

necessary to do each of the following except

a. sell noncash assets for cash.

b. recognize a gain or loss on realization.
c. allocate the gain or loss to the partners based on their capital balances.
d. pay partnership liabilities in cash.

29. The admission of a new partner to an existing partnership

a. may be accomplished only by investing assets in the partnership.

b. requires purchasing the interest of one or more existing partners.
c. causes a legal dissolution of the existing partnership.
d. is almost always accompanied by the liquidation of the business.
30 . When a partnership interest is purchased

a. every partner’s capital account is affected.

b. the transaction is a personal transaction between the purchaser and the selling
partner(s).
c. the buyer receives equity equal to the amount of cash paid.
d. all partners will receive some part of the purchase price.

31. 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

32. When admitting a new partner by investment, a bonus to old partners

a. is usually unjustified because book values clearly reflect partnership net worth.
b. is sometimes justified because goodwill may exist and it is not reflected in the
accounts.
c. results if the debit to cash is less than the new partner's capital credit.
d. results if the debit to cash is equal to the new partner's capital credit.

33. When admitting a new partner by investment, a bonus to old partners is allocated on

a. the basis of capital balances.

b. the basis of the original investment of the old partners.
c. the basis of income ratios before the admission of the new partner.
d. a seniority basis.

34. An upward adjustment of partnership assets is implied before a new partner is admitted

a. this is prohibited by GAAP.

b. when the new partner's capital credit is greater than his or her investment of assets
in the firm.
c. when recorded book values are greater than market values.
d. when total contributions is lesser than total agreed equity and the new partner's
capital credit is the same as his or her investment of assets in the firm.

35. A bonus to a new partner will

a. increase the capital balances of existing partners based on their income ratios before
the admission of the new partner.
 b. increase the capital balances of existing partners based on their income ratios after
the admission of the new partner.
c. decrease the capital balances of existing partners based on their income ratios
before the admission of the new partner.
d. decrease the capital balances of existing partners based on their capital balances
before the admission of the new partner.

36. Which of the following is not a necessary action that the partnership must take upon the
death of a partner?

a. Determine the net income or net loss for the year to date.
b. Discontinue business operations.
c. Close the books.
d. Prepare financial statements.

37. An entry is not required in the liquidation of a partnership to record the

a. payment of cash to creditors.

b. distribution of cash to the partners.
c. sale of noncash assets.
d. allocation of a capital deficiency to partners with credit balances when the deficient
partner is expected to pay the deficiency.

38. A partnership recorded the following journal entry:

This entry reflects:

a. Admission of a new partner who invests P70,000 and receives a P20,000 bonus.
b. Withdrawal of a partner who pays a P10,000 bonus to each of the other partners.
c. Admission of a partner who pays a bonus to each of the other partners.
d. Additional investment into the partnership by Tanner and Jackson.

39. Baker joins the partnership of Lutong Kusina by paying P300,000 in cash. If the net
assets of the partnership are still the same amount after Baker has been admitted as a
partner, then Baker

a. must have been admitted by investment of assets.

b. must have been admitted by purchase of a partner's interest.
c. must have received a bonus upon being admitted.
d. could have been admitted by an investment of assets or by a purchase of a partner's
interest.
40. The partnership agreement of De Rosi and Pietro provides for salary allowances of
P45,000 to De Rosi and P35,000 to Pietro, with the remaining income or loss to be
divided equally. During the year, each one withdraw cash equal to 80% of their salary
allowances. If partnership net income is P100,000, De Rosi's equity in the partnership
would

a. increase more than Pietro’s.

b. decrease more than Pietro's.
c. increase the same as Pietro's.
d. decrease the same as Pietro's.

MULTIPLE CHOICE – Problem Solving

1. Chua and Wong are forming a partnership. Chua will invest a building that currently is being
used by another business owned by Chua. The building has a market value of P900,000.
Also, the partnership will assume responsibility for a P300,000 note secured by a mortgage
on that building. Wong will invest P500,000 cash. For the partnership, the amounts to be
recorded for the building and for Chua's Capital account are:

a. Building, P900,000 and Chua, Capital, P900,000.

b Building, P600,000 and Chua, Capital, P600,000.
c. Building, P600,000 and Chua, Capital, P500,000.
d. Building, P900,000 and Chua, Capital, P600,000.

2. Bob is investing in a partnership with Jerry. Bob contributes equipment that originally cost
P63,000, has a book value of P30,000, and a fair market value of P39,000. The entry that
the partnership makes to record Bob's initial contribution includes a

a. debit to Equipment for P33,000.

b. debit to Equipment for P63,000.
c. debit to Equipment for P39,000.
d. credit to Accumulated Depreciation for P33,000

Use the following information for questions 3– 5.

Jameson and Larry are forming a partnership. Jameson will invest a truck with a book value
of P100,000 and a fair market value of P140,000. Larry will invest a building with a book
value of P300,000 and a fair market value of P420,000 with a mortgage of P150,000.

3. At what amount should the building be recorded?

a. P300,000
b. P270,000
c. P420,000
 d. P450,000

4. What amount should be recorded in Larry’s capital account?

a. P300,000
b. P270,000
c. P420,000
d. P140,000

5. If it was further agreed that both partners will have equal share in the assets, using the cash
method, how much should be the additional cash investment of Jameson?

a. P200,000
b. P170,000
c. P160,000
d. P130,000

6. Ric, Henry, and Dem formed a partnership with Ric contributing P60,000, Henry contributing
P50,000 and Dem contributing P40,000. If the partnership had income of P75,000 for its first
year of operation, what amount of income would be credited to Dem's capital account?

a. P20,000.
b. P25,000.
c. P30,000.
d. P40,000.

7. Web Services is organized as a limited partnership, with David as one of its partners.
David's capital account began the year with a balance of P450,000. During the year,
David's share of the partnership income was P75.000, and David received P40,000 in
distributions from the partnership. What is David's return on equity?

a. 7.8%
b. 15.4%
c. 16.0%
d. 8.9%

8. Partner Fe is investing in a partnership with Partner Ann. Fe contributes as part of her initial
investment, Accounts Receivable of P80,000; an Allowance for Doubtful Accounts of
P12,000. Accounts of P8,000 should be written off. The entry that the partnership makes to
record Fe's initial contribution includes a

a. credit to Fe, Capital for P88,000.

b. debit to Accounts Receivable for P80,000.
c. credit to Fe, Capital for P68,000.
d. credit to Allowance for Doubtful Accounts for P12,000.
 Use the following information for questions 9–11.

Partners Adan and Eba have capital balances in a partnership of P400,000 and P600,000,
respectively. They agree to share profits and losses as follows:

Adan Eba
As salaries P100,000 P120,000
As interest on capital at the beginning of the year 10% 10%
Remaining profits or losses 50% 50%

9. If income for the year was P500,000, what will be the distribution of income to Eba?

a. P230,000
b. P270,000
c. P200,000
d. P100,000

10. If income for the year was P300,000, what will be the distribution of income to Adan?

a. P130,000
b. P170,000
c. P100,000
d. P140,000

11. If net loss for the year was P20,000, what will be the distribution to Eba?

a. P120,000 income
b. P10,000 income
c. P10,000 loss
d. P20,000 loss

12. Jill's capital statement reveals that her drawings during the year were P50,000. She made
an additional capital investment of P25,000 thereby increasing her beginning capital of
P245,000. Her ending capital balance became P200,000. What was Jill's share in the
net profit or net loss?

a. P20,000 share in net loss

b. P40,000 share in net income
c. P35,000 share in net loss
d. P10,000 share in net loss

Use the following information for questions 13–15.

The partners' income and loss sharing ratio is 2:3:5, respectively.

A, B, AND C PARTNERSHIP
 Statement of Financial Position
December 31, 2013
Assets Liabilities and Partners' Equity
Cash P 90,000 Liabilities P300,000
Noncash assets 570,000 A, Capital 120,000
B, Capital 180,000
C, Capital 60,000
Total P660,000 Total P660,000

13. If the partnership is liquidated by selling the noncash assets for P390,000 and creditors
are paid in full, what is the amount of cash that can be safely distributed to B?

a. P108,000.
b. P126,000
c. P111,000.
d. P114,000

14. If the partnership is liquidated by selling the noncash assets for P750,000, and creditors
are paid in full, what is the total amount of cash that Partner A will receive in the
distribution of cash to partners?

a. P36,000
b. P234,000
c. P156,000
d. P150,000

15. If the partnership is liquidated and the noncash assets are worthless, the creditors will
look to whose partner's personal assets for settlement of the creditors' claims?

a. The personal assets of Partner C.

b. The personal assets of Partners A and C.
c. The personal assets of all the partners.
d. The personal assets of the partners are not available for partnership debts.

16. A, B and C are partners, sharing income 2:1:2. After selling all of the assets for cash,
dividing gains and losses on realization, and paying liabilities, the balances in the capital
accounts are as follows: A, P10,000 Cr; B, P10,000 Cr; and C, P20,000 Dr. How much
cash should be distributed to A if C is only solvent by P14,000?

a. P5,600
b. P14,000
c. P10,000
d. P6,000

17. In liquidation, balances prior to the distribution of cash to the partners are: Cash
P255,000; Moore, Capital P140,000; Simon, Capital P130,000, and Kelly, Capital
 P30,000. The income ratio is 6:2:2, respectively.. How much cash should be distributed
to Simon if Kelly does not pay his deficiency?

a. P122,500
b. P126,250
c. P118,750
d. P130,000

18. Gwen purchases a 25% interest for P30,000 when the partnership of Super, James and
King has a total capital of P270,000. Prior to the admission of Gwen, each partner has a
capital balance of P90,000. Each partner relinquishes an equal amount of his capital
balance to Gwen. The amount to be relinquished by King is

a. P15,000.
b. P19,000.
c. P22,500.
d. P37,500.

19. Brenda is admitted to a partnership with a 25% capital interest by a cash investment of
P90,000. If total capital of the partnership is P390,000 before admitting Brenda, the
bonus to Brenda is

a. P30,000. a. Bonus from Brenda is P30,000

b. P15,000. b. Bonus to Brenda is P30,000
c. P45,000. C. Bonus from Brenda is P15,000
d. P60,000. D. Bonus to Brenda is P15,000

Use the following information for questions 20–21.

Carla and Kidman are partners who share income and losses in the ratio of 3:2,
respectively. On August 31, their capital balances were: Carla, P175,000 and Kidman,
P150,000. On that date, they agree to admit Lorna as a partner with a one-third capital
interest.

20. If Lorna invests P125,000 in the partnership, what is Carla's capital balance after Lorna's
admittance?

a. P150,000
b. P158,333
c. P160,000
d. P175,000

21. If Lorna invests 200,000 in the partnership, what is Kidman's capital balance after
Lorna's admittance?

a. P175,000
 b. P160,000
c. P157,500
d. P150,000

22. Kring and Kong are partners who share profits and losses equally and have capital
balances of P560,000 and P490,000, respectively. Stan is admitted into the partnership
by investing P490,000 for 30% capital interest. The account balance of Kong, Capital
after the admission of Stan would be

a. P462,000.
b. P476,000.
c. P504,000.
d. P490,000.

23. Adelle and Lynn each sell 1/3 of their partnership interest to Chiel receiving P140,000
each. At the time of the admission, each partner has a P420,000 capital balance. The
entry to record the admission of Chiel will show a

a. debit to Cash for $280,000.

b. credit to Chiel, Capital for P420,000.
c. debit to Lynn, Capital for P420,000.
d. debit to Adlelle, Capital for P140,000.

24. Lewis is admitted to a partnership with a 25% capital interest by a cash investment of
P120,000. If total capital of the partnership is P520,000 before admitting Lewis, the
bonus to Lewis is

a. P40,000.
b. P20,000.
c. P60,000.
d. P80,000.

25. Partners Cielo and Shiela have capital balances in a partnership of P400,000 and
P600,000, respectively. They agree to share profits and losses as follows:

Cielo Shiela
As salaries P100,000 P120,000
As interest on capital at the beginning of the year 10% 10%
As bonus after salaries, interests and bonus 5%
Remaining profits or losses 50% 50%

If income for the year was P446,000, what will be the distribution of residual income to
Cielo?

a. P59,850
b. P60,000
c. P206,000
 d. P240,000

26. Greta and Jackson are partners. Greta's capital balance in the partnership is P64,000, and
Jackson's capital balance P61,000. Greta and Jackson have agreed to share equally in
income or loss. Greta and Jackson agree to accept Black with a 20% interest. Black will
invest P35,000 in the partnership. The bonus that is granted to the current partners equals:
a. P1,500 each.
b. P1,875 each.
c. P3,750 each
d. P1,920 to Greta; P1,830 to Jackson.

27. Tim, Don, and Hank are partners with capital balances of P20,000, P30,000, and P50,000
respectively. They share income in the ratio of 3:2:1. Income Summary with a debit
balance of P30,000 is closed to the capital accounts. A gain is recognized for Tim in the
amount of P6,000. How much cash does he get from the partnership upon withdrawal?

a. P30,000
b. P20,000
c. P40,000
d. P24,000

28. A and B are partners who share income in the ratio of 1:2 and have capital balances of
P40,000 and P70,000 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 P80,000. What amount
of loss on realization should be allocated to A?

a. P80,000
b. P10,000
c. P20,000
d. {30,000

Use the following information for 29 and 30:

X, Y, and Z are partners, sharing income 1:2:3. After selling all of the assets for cash,
dividing losses on realization, and paying liabilities, the balances in the capital accounts are
as follows: X, Loan P20,000 Cr.; X, Capital, P30,000; Y, P20,000 Cr.; and Z, P30,000 Dr.
Assume that after the available cash is distributed to the partners, Z pays P15,000 of the
deficiency to the firm.

29. How much of the P15,000 should be distributed to X?

a. P15,000
 b. P0
c. P5,000
d. P10,000

30. How much will Y receive?

a. P15,000
b. P0
c. P5,000
d. P10,000

Chapter 17 of Beams

The first-to-last ranking order of priority of the following claims:

I. stockholder claims

II. unsecured priority claims

III. secured claims

IV. unsecured nonpriority claims

in a bankruptcy case is

a. I,II,IV, and III.

b. III,II,IV and I.

c. III,I,IV, and II.

d. II,IV,III,and I.
Use the following information for questions 6, 7 and 8.

A summary balance sheet for the McCune, Nall, and Oakley partnership appears below. McCune, Nall,
and Oakley share profits and losses in a ratio of 2:3:5, respectively.

Assets

Cash $ 50,000

Inventory 62,500

Marketable securities 100,000

Land 50,000

Building-net 250,000

Total assets $ 512,500

Equities

McCune, capital $ 212,500

Nall, capital 200,000

Oakely, capital 100,000

Total equities $ 512,500

The partners agree to admit Pavic for a one-fifth interest. The fair market value of partnership land is
appraised at $100,000 and the fair market value of inventory is $87,500. The assets are to be revalued
prior to the admission of Pavic and there is $15,000 of goodwill that attaches to the old partnership.
LO2

6. By how much will the capital accounts of McCune, Nall, and Oakley increase, respectively,
due to the revaluation of the assets and the recognition of goodwill?

a. The capital accounts will increase by $25,000 each.

b. The capital accounts will increase by $30,000 each.

c. $18,000, $27,000, and $45,000.

d. $20,000, $25,000, and $30,000.

LO2

7. How much cash must Pavic invest to acquire a one-fifth interest?

a. $117,500.

b. $120,500.

c. $146,875.

d. $150,625.

LO2

8. What will the profit and loss sharing ratios be after Pavic’s investment?

a. 1:2:4:2.

b. 2:3:5:2.

c. 3:4:6:2.

d. 4:6:10:5.

Use the following information for questions 9, 10 and 11.

Albion and Blaze share profits and losses equally. Albion and Blaze receive salary allowances of
$20,000 and $30,000, respectively, and both partners receive 10% interest on their average capital
balances. Average capital balances are calculated at the beginning of each month balance regardless of
when additional capital contributions or permanent withdrawals are made subsequently within the
month. Partners’ drawings are not used in determining the average capital balances. Total net income
for 2006 is $120,000.

Albion Blaze

January 1 capital balances $ 100,000 $ 120,000

Yearly drawings ($1,500 a month) 18,000 18,000

Permanent withdrawals of capital:

June 3 ( 12,000 )

May 2 ( 15,000 )

Additional investments of capital:

July 3 40,000

October 2 50,000

LO3

9. What is the weighted-average capital for Albion and Blaze in 2006?

a. $100,000 and $120,000.

b. $105,333 and $126,667.

c. $110,667 and $119,583.

d. $126,667 and $105,333.

LO3
 10. If the average capital for Albion and Blaze from the above information is $112,000 and
$119,000, respectively, what will be the total amount of profit allocated after the salary and
interest distributions are completed?

a. $70,000.

b. $73,100.

c. $75,000.

d. $80,000.

Use the following information for questions 12 and 13.

Bloom and Carnes share profits and losses in a ratio of 2:3, respectively. Bloom and Carnes receive
salary allowances of $10,000 and $20,000, also respectively, and both partners receive 10% interest
based upon the balance in their capital accounts on January 1. Partners’ drawings are not used in
determining the average capital balances. Total net income for 2006 is $60,000. If net income after
deducting the interest and salary allocations is greater than $20,000, Carnes receives a bonus of 5% of
the original amount of net income.

Bloom Carnes

January 1 capital balances $ 200,000 $ 300,000

Yearly drawings ($1,500 a month) 18,000 18,000

LO3

12. What are the total amounts for the allocation of interest, salary, and bonus, and, how much
over-allocation is present?

a. $60,000 and $0.

b. $80,000 and $20,000.

c. $83,000 and $0.

 d. $83,000 and $23,000.

LO3

13. If the partnership experiences a net loss of $20,000 for the year, what will be the final amount
of profit or (loss) closed to each partner’s capital account?

a. ($30,000) to Bloom and $10,000 to Carnes.

b. ($10,000) to Bloom and ($10,000) to Carnes.

c. ($8,000) to Bloom and ($12,000) to Carnes.

d. $10,000 to Bloom and ($30,000) to Carnes.

The profit and loss sharing agreement for the Quade, Reid, and Scott
partnership provides for a $15,000 salary allowance to Reid. Residual
profits and losses are allocated 5:3:2 to Quade, Reid, and Scott,
respectively. In 2006, the partnership recorded $120,000 of net
income that was properly allocated to the partner's capital accounts.
On January 25, 2007, after the books were closed for 2006, Quade
discovered that office equipment, purchased for $12,000 on December
29, 2006, was recorded as office expense by the company bookkeeper.

Required:

Prepare the necessary correcting entry(s) for the partnership.

LO1

4. A partnership in liquidation has converted all assets into cash and paid all liabilities.
According to the Uniform Partnership Act, the order of payment

a. will have amounts due to partners with respect to their capital accounts take precedence
over amounts owed by partners other than for capital and profits.
 b. will be according to the partners’ residual profit and loss sharing ratios.

c. will have amounts owed by partners other than for capital and profits take precedence
over amounts due to partners with respect to their capital accounts.

d. Will be by any manner that is both reasonable and rational for the partnership.

5. In partnership liquidation, how are partner salary allocations treated?

a. Salary allocations take precedence over creditor payments.

b. Salary allocations take precedence over amounts due to partners with respect to their
capital interests, but not profits.

c. Salary allocations take precedence over amounts due to partners with respect to their
capital profits, but not capital interests.

d. Salary allocations are disregarded.

In a simple partnership liquidation, the last remaining cash distribution should be made
according to the ratio of

a. the individual partner’s profit and loss agreement.

b. the individual partner's capital accounts, increased by partner loans to the partnership.

c. the individual partner’s capital accounts, increased by partnership loans to the partners
and decreased by partner loans to the partnership.

d. the individual partner’s capital accounts, decreased by partnership loans to the partners
and increased by partner loans to the partnership.

12. Hara, Ives, and Jack are in the process of liquidating their partnership. Since it may take
several months to convert the other assets into cash, the partners agree to distribute all
available cash immediately, except for $10,000 that is set aside for contingent expenses. The
balance sheet and residual profit and loss sharing percentages are as follows:

Cash $ 400,000 Accounts payable $ 200,000

Other assets 200,000 Hara, capital (40%) 135,000

Ives, capital (30%) 216,000

 Jack, capital (30%) 49,000

Total assets $ 600,000 Total liab./equity $ 600,000

How much cash should Ives receive in the first distribution?

a. $146,000.

b. $147,000.

c. $153,000.

d. $156,000

LO2

13. Jade, Kahl, and Lane are in the process of liquidating their partnership. Lane has agreed to
accept the inventory, which has a fair value of $60,000, as part of her settlement. A balance
sheet and the residual profit and loss sharing percentages are as follows:

Cash $ 198,000 Accounts payable $ 149,000

Inventory 80,000 Jade, capital (40%) 79,000

Plant assets 230,000 Kahl, capital (40%) 140,000

Lane, capital (20%) 140,000

Total assets $ 508,000 Total liab./equity $ 508,000

 If the partners then distribute the available cash, Lane will receive

a. $23,000.

b. $29,000

c. $30,000.

d. $34,000.

LO2

14. Under the rule of offset, what is the proper disposition of a partnership loan that was made
from a partner who has a debit balance?

a. The loan is first paid to the debtor partner before cash payments are made to partners.

b. The loan is written off as a partnership loss if the partner does not have the cash to
cover the debit balance.

c. The loan is charged off to the capital accounts of all the partners in their profit and loss
sharing ratios.

d. The loan is charged off to the capital account of the debtor partner.

16. If all partners are included in the first installment of an installment liquidation, then in future
installments

a. cash will be distributed according to the residual profit and loss sharing ratio.

b. cash should not be distributed until all non-cash assets are converted into cash.

c. a safe payments schedule must be prepared before each cash distribution to avoid
excessive payments to partners.

d. a cash distribution plan must be prepared so that partners will know when they will be
 included in cash distributions.

16. If all partners are included in the first installment of an installment liquidation, then in future
installments

a. cash will be distributed according to the residual profit and loss sharing ratio.
b. cash should not be distributed until all non-cash assets are converted into cash.
c. a safe payments schedule must be prepared before each cash distribution to avoid
excessive payments to partners.
d. a cash distribution plan must be prepared so that partners will know when they will be
included in cash distributions.

17. In a schedule of assumed loss absorptions

a. the partner with lowest loss absorption is eliminated last.

b. it is necessary to have a cash distribution plan first.
c. the least vulnerable partner is eliminated first.
d. the most vulnerable partner is eliminated first.

A cash distribution plan for the Folger, Glover, and Hale partnership was as follows:

Priority

Creditors Folger Glover Hale

First $250,000 100%

Next $100,000 70% 30%

Next $150,000 11/15 4/15

Remainder 20% 35% 45%

If $510,000 of cash was distributed by the partnership, how much was received by Folger?

Exercise 7

The partnership of Hanly, Ide, and Jen was dissolved. By August 1, 2006, all assets had been converted
into cash and all partnership liabilities were paid. The partnership balance sheet on August 1, 2006 (with
partner residual profit and loss sharing percentages) was as follows:

Cash $ 50,000 Hanly, capital(30%) $ 4,000

Ide, capital(20%) (60,000)
Jen, capital(50%) 106,000

Total assets $ 50,000 Total equity $ 50,000

The value of partners' personal assets and liabilities on August 1, 2006 were as follows:

Hanly Ide Jen

Personal assets $ 74,000 $ 120,000 $ 56,000

Personal liabilities 72,000 80,000 60,000

How much cash will Jen receive?