What was Cleary’s capital account balance at the end of 2018?

A) $163,420.

B) $151,420.

C) $139,420.

D) $100,000.

E) $142,000.

Answer: C

Learning Objective: 14-05  

Learning Objective: 14-06

Topic: Net income allocation―Partner ending balance

Difficulty: 3 Hard  

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Beginning Cleary capital balance $117,000 + Interest $11,700 (10% × $117,000) + Salary $0 + 20% of Remaining 2018 net income (calculated below) $22,720 – Withdrawals $12,000 = $139,420.

Remaining 2018 net income = $180,000 − $56,400 (10% of $564,000) − $10,000 (Wasser Salary) = $113,600 × 20% = $22,720.

[QUESTION]

REFER TO: 14-01

22.   What was the total capital balance for the partnership at December 31, 2018?

A) $852,000.

B) $780,000.

C) $708,000.

D) $744,000.

E) $594,000.

Answer: C

Learning Objective: 14-05

Learning Objective: 14-06

Topic: Net income allocation―Partner ending balance

Difficulty: 2 Medium

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Cleary 2018 Ending Capital Balance $139,420 + Wasser $264,540 2018 Ending Capital Balance + Nolan 2018 Ending Capital Balance $304,040 = $708,000.

Alternatively, beginning 2017 capital balances ($100,000 + $150,000 + $200,000) = $450,000 + 2017 net income $150,000 − 2017 withdrawals $36,000 = $564,000 ending 2017 balance + 2018 net income $180,000 − 2018 withdrawals $36,000 = $708,000.

[QUESTION]

REFER TO: 14-01

23.   What will be the amount of interest attributed to Cleary in the income distribution for 2019?

A) $15,142.

B) $13,942.

C) $12,942.

D) $14,142.

E) $10,000.

Answer: B

Learning Objective: 14-06

Topic: Net income allocation―Interest-salary-bonus

Difficulty: 3 Hard

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Beginning 2018 capital balance $117,000 + 2018 Interest $11,700 (10% × $117,000) + Salary $0 + 20% of Remaining 2018 net income $22,720 – Withdrawals $12,000 = (2018 ending balance) $139,420 × 10% = $13,942

[QUESTION]

24.  Jell and Dell were partners with capital balances of $600 and $800, and an income-sharing ratio of 2:3.  They admitted Zell with a 30% interest in the partnership, and the total amount of goodwill credited to the original partners was $700.  What amount did Zell contribute to the business?

A) $900.

B) $560.

C) $600.

D) $590.

E) $630.

Answer: A

Learning Objective: 14-09  

Topic: New partner―Partnership valuation

Difficulty: 3 Hard 

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Jell $600 + Dell $800 + Goodwill $700 = $2,100 / 70% = $3,000 × 30% = $900 Cash

[QUESTION]

25.   Jerry, a partner in the JSK partnership, begins the year on January 1, 2018 with a capital balance of $20,000.  The JSK partnership agreement states that Jerry receives 6% interest on his monthly weighted average capital balance without regard to normal drawings. Each partner draws $5,000 in cash from the business every quarter. Any withdrawal in excess of that will be accounted for as a direct reduction of the partner’s capital balance.

On March 1, 2018, when the partnership tax return for 2017 was completed, Jerry’s capital

      account was credited for his share of 2017 profit of $120,000. 

Jerry withdrew $5,000 quarterly, beginning March 31st. 

On September 1, Jerry’s capital account was credited with a special bonus of $60,000 for

      business he brought to the partnership.

What amount of interest will be attributed to Jerry for the year 2018 that will go toward his profit distribution for the year?

A) $6,000.

B) $6,250.

C) $7,950.

D) $8,400.

E) None of these answer choices is correct.

Answer: D

Learning Objective: 14-06

Topic: Net income allocation―Interest-salary-bonus

Difficulty: 3 Hard

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: (Beginning balance $20,000 × 2 months) + [(20,000 + $120,000) x 6 months] + [(140,000 + Bonus $60,000) × 4 months] = $40,000 + $840,000 + $800,000 = 1,680,000 ÷12 months = Average monthly capital balance $140,000 × .06 = $8,400

REFERENCE: 14-02

A partnership began its first year of operations with the following capital balances:

Young, Capital:      $143,000

Eaton, Capital:        $104,000

Thurman, Capital:  $143,000

The Articles of Partnership stipulated that profits and losses be assigned in the following manner:

• Young was to be awarded an annual salary of $26,000 and $13,000 salary was to be awarded to Thurman.
• Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.
• The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.
• Each partner withdrew $13,000 per year.

Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year. 

[QUESTION]

REFER TO: 14-02

26.  What was Young’s total share of net loss for the first year?

A) $  3,900 loss.

B) $11,700 loss.

C) $10,400 loss.

D) $24,700 loss.

E) $  9,100 loss.

Answer: B

Learning Objective: 14-06  

Topic: Net income allocation―Interest-salary-bonus

Difficulty: 2 Medium  

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Net loss ($26,000) – Interest ($390,000 total beginning capital × 10%) $39,000 – Salaries $39,000 = ($104,000) × 50% = Young’s portion ($52,000) + Young’s Interest $14,300 + Young’s Salary $26,000 = Young’s share of loss ($11,700)

 

[QUESTION]

REFER TO: 14-02

27.  What was Eaton’s total share of net loss for the first year?

A) $  3,900 loss.

B) $11,700 loss.

C) $10,400 loss.

D) $24,700 loss.

E) $  9,100 loss.

Answer: C

Learning Objective: 14-06  

Topic: Net income allocation―Interest-salary-bonus

Difficulty: 2 Medium                                    

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Net loss ($26,000) – Interest ($390,000 total beginning capital × 10%) $39,000 – Salaries $39,000 = ($104,000) × 20% = Eaton’s portion ($20,800) + Eaton’s Interest $10,400 + Eaton’s Salary $0 = Eaton’s share of loss ($10,400)

 

[QUESTION]

REFER TO: 14-02

28.  What was Thurman’s total share of net loss for the first year?

A) $  3,900 loss.

B) $11,700 loss.

C) $10,400 loss.

D) $24,700 loss.

E) $  9,100 loss.

Answer: A

Learning Objective: 14-06  

Topic: Net income allocation―Interest-salary-bonus

Difficulty: 2 Medium  

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Net loss ($26,000) – Interest ($390,000 total beginning capital × 10%) $39,000 – Salaries $39,000 = ($104,000) × 30% = Thurman’s portion ($31,200) + Thurman’s Interest $14,300 + Thurman’s Salary $13,000 = Thurman’s share of loss ($3,900)

 

[QUESTION]

REFER TO: 14-02

29.  What was the balance in Young’s Capital account at the end of the first year?

A) $120,900.

B) $118,300.

C) $126,100.

D) $  80,600.

E) $111,500.

Answer: B

Learning Objective: 14-05

Learning Objective: 14-06 

Topic: Net income allocation―Partner ending balance

Difficulty: 2 Medium  

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Beginning $143,000 + Interest $14,300 + Salary $26,000 + Remainder (50%) ($52,000) – Withdrawals $13,000 = Ending Balance $118,300

 

[QUESTION]

REFER TO: 14-02

30.  What was the balance in Eaton’s Capital account at the end of the first year?

A) $120,900.

B) $118,300.

C) $126,100.

D) $  80,600.

E) $111,500.

Answer: D

Learning Objective: 14-05  

Learning Objective: 14-06

Topic: Net income allocation―Partner ending balance

Difficulty: 2 Medium  

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Beginning $104,000 + Interest $10,400 + Salary $0 + Remainder (20%) ($20,800) – Withdrawals $13,000 = Ending Balance $80,600

 

[QUESTION]

REFER TO: 14-02

31.  What was the balance in Thurman’s Capital account at the end of the first year?

A) $120,900.

B) $118,300.

C) $126,100.

D) $  80,600.

E) $111,500.

Answer: C

Learning Objective: 14-05  

Topic: Net income allocation―Partner ending balance

Difficulty: 2 Medium  

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Beginning $143,000 + Interest ($143,000 × 10%) $14,300 + Salary $13,000 + Remainder (30%) ($31,200) – Withdrawals $13,000 = Ending Balance $126,100

 

[QUESTION]

REFER TO: 14-02

32.  What was Young’s total share of net income for the second year?

A) $17,160 income.

B) $  4,160 income.

C) $19,760 income.

D) $17,290 income.

E) $28,080 income.

Answer: E

Learning Objective: 14-06   

Topic: Net income allocation―Interest-salary-bonus

Difficulty: 3 Hard  

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Net income $52,000 – Interest $32,500 (calculated below) – Salaries $39,000 = ($19,500) × 50% = Young’s portion ($9,750) + Young’s Interest $11,830 + Young’s Salary $26,000 = Young’s share of net income $28,080.

Interest for second year = First year: Beginning capital balance $390,000 − Net loss $26,000 − Withdrawals $39,000 = Ending capital balance first year (beginning capital balance second year) $325,000 × 10% = $32,500 Interest for second year.

 

[QUESTION]

REFER TO: 14-02

33.  What was Eaton’s total share of net income for the second year?

A) $17,160 income.

B) $  4,160 income.

C) $19,760 income.

D) $17,290 income.

E) $28,080 income.

Answer: B

Learning Objective: 14-06  

Topic: Net income allocation―Interest-salary-bonus

Difficulty: 3 Hard  

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Net income $52,000 – Interest $32,500 (calculated below) – Salaries $39,000 = ($19,500) × 20% = Eaton’s portion ($3,900) + Interest $8,060 + Salary $0 = Eaton’s share of net  income $4,160.

Interest for second year = First year: Beginning capital balance $390,000 − Net loss $26,000 − Withdrawals $39,000 = Ending capital balance first year (beginning capital balance second year) $325,000 × 10% = $32,500 Interest for second year.

[QUESTION]

REFER TO: 14-02

34.  What was Thurman’s total share of net income for the second year?

A) $17,160 income.

B) $  4,160 income.

C) $19,760 income.

D) $17,290 income.

E) $28,080 income.

Answer: C

Learning Objective: 14-06  

Topic: Net income allocation―Interest-salary-bonus

Difficulty: 3 Hard  

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Net Income $52,000 – Interest $32,500 (calculated below) – Salaries $39,000 = ($19,500) × 30% = Thurman’s Portion ($5,850) + Interest $12,610 + Salary $13,000 = Thurman’s share of net income $19,760.

Interest for second year = First year: Beginning capital balance $390,000 − Net loss $26,000 − Withdrawals $39,000 = Ending capital balance first year (beginning capital balance second year) $325,000 × 10% = $32,500 Interest for second year.

 

[QUESTION]

REFER TO: 14-02

35.  What was the balance in Young’s Capital account at the end of the second year?

A) $133,380.

B) $  84,760.

C) $105,690.

D) $132,860.

E) $  71,760.

Answer: A

Learning Objective: 14-05

Learning Objective: 14-06  

Topic: Net income allocation―Partner ending balance

Difficulty: 3 Hard  

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Beginning $118,300 + Interest $11,830 + Salary $26,000 + Remainder (50%) ($9,750) – Withdrawals $13,000 = Ending Balance $133,380

 

[QUESTION]

REFER TO: 14-02

36.  What was the balance in Eaton’s Capital account at the end of the second year?

A) $133,380.

B) $  84,760.

C) $105,690.

D) $132,860.

E) $  71,760.

Answer: E

Learning Objective: 14-05

Learning Objective: 14-06   

Topic: Net income allocation―Partner ending balance

Difficulty: 3 Hard  

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Beginning $80,600 + Interest $8,060 + Salary $0 + Remainder (20%) ($3,900) – Withdrawals $13,000 = Ending Balance $71,760

 

[QUESTION]

REFER TO: 14-02

37.  What was the balance in Thurman’s Capital account at the end of the second year?

A) $133,380.

B) $  84,760.

C) $105,690.

D) $132,860.

E) $  71,760.

Answer: D

Learning Objective: 14-05

Learning Objective: 14-06  

Topic: Net income allocation―Partner ending balance

Difficulty: 3 Hard  

Blooms: Apply

AACSB: Knowledge Application

AICPA: BB Legal

AICPA: FN Measurement

Feedback: Beginning $126,100 + Interest $12,610 + Salary $13,000 + Remainder (30%) ($5,850) – Withdrawals $13,000 = Ending Balance $132,860

 

[QUESTION]

38.  Which of the following is not a characteristic of a partnership?

A) The partnership itself pays no income taxes.

B) It is easy to form a partnership.

C) Any partner can be held personally liable for all debts of the business.

D) A partnership requires written Articles of Partnership.

E) Each partner has the power to obligate the partnership for liabilities.

Answer: D

Learning Objective: 14-01 

Topic: Advantages and disadvantages of partnerships

Topic: Articles of partnership

Difficulty: 1 Easy

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Legal

AICPA: FN Measurement

 

[QUESTION]

39.  Partnerships have alternative legal forms including all of the following except:

A) General Partnership.

B) Limited Partnership.

C) Subchapter S Partnership.

D) Limited Liability Partnership.

E) Limited Liability Company.

Answer: C

Learning Objective: 14-01 

Topic: Alternative legal forms of partnership

Difficulty: 1 Easy  

Blooms: Remember

AACSB: Reflective Thinking

AICPA: BB Legal

AICPA: FN Measurement