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When a new partner is admitted, all parties usually must agree to the admission.

A) True
B) False

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Discuss the options for the allocation of income and loss among partners, including with and without a partnership agreement.

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A partnership agreement should specify h...

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Mace and Bowen are partners and share equally in income or loss. Mace's current capital balance is $135,000 and Bowen's is $120,000. Mace and Bowen agree to accept Kent with a 30% interest in the partnership. Kent invests $115,000 in the partnership. The balances in Mace's and Bowen's capital accounts after admission of the new partner equal:


A) Mace $133,000; Bowen $118,000.
B) Mace $135,000; Bowen $124,000.
C) Mace $137,000; Bowen $122,000.
D) Mace $135,000; Bowen $120,000.
E) Mace $139,000; Bowen $120,000.

F) A) and B)
G) A) and C)

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A partnership may allocate salary allowances to the partners reflecting the relative value of services provided.

A) True
B) False

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Caitlin, Chris, and Molly are partners and share income and losses in a 3:4:3 ratio. The partnership's capital balances are Caitlin, $120,000; Chris, $80,000; and Molly, $100,000. Paul is admitted to the partnership on July 1 with a 20% equity and invests $160,000. The balance in Caitlin's capital account immediately after Paul's admission is:


A) $140,400
B) $107,200
C) $120,400
D) $99,600
E) $160,000

F) D) and E)
G) B) and D)

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Partner return on equity can be used by each partner to help decide whether additional investment or withdrawal of resources is best for that partner.

A) True
B) False

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A bonus may be paid in all of the following situations except:


A) By remaining partners to a withdrawing partner if the recorded equity is understated.
B) To a new partner with exceptional talents.
C) By an existing partner to him or herself when in need of personal cash flow.
D) By a new partner when the current value of a partnership is greater than the recorded amounts of equity.
E) By a withdrawing partner to remaining partners if the recorded value of the equity is overstated.

F) A) and B)
G) C) and D)

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Wheadon, Davis, and Singer formed a partnership with Wheadon contributing $60,000, Davis contributing $50,000 and Singer contributing $40,000. Their partnership agreement called for the income (loss) division to be based on the ratio of capital investments. If the partnership had income of $75,000 for its first year of operation, what amount of income (rounded to the nearest thousand) would be credited to Wheadon's capital account?


A) $30,000.
B) $40,000.
C) $25,000.
D) $20,000.
E) $75,000.

F) A) and E)
G) C) and E)

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A partnership in which all partners have mutual agency and unlimited liability is called:


A) S corporation.
B) Limited partnership.
C) Limited liability company.
D) Limited liability partnership.
E) General partnership.

F) B) and E)
G) A) and B)

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T. Andrews contributed $14,000 in to the T & B Partnership. The journal entry to record the transaction for the partnership is:


A) Debit T. Andrews, Capital $14,000; credit T & B Partnership, Capital $14,000.
B) Debit T & B Partnership $14,000; credit T. Andrews, Capital $14,000.
C) Debit Cash $14,000; credit T. Andrews, Capital $14,000.
D) Debit Cash $14,000; credit T & B Partnership, Capital $14,000.
E) Debit Cash $14,000; credit Common Stock $14,000.

F) C) and D)
G) B) and D)

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Wallace and Simpson formed a partnership with Wallace contributing $60,000 and Simpson contributing $40,000. Their partnership agreement calls for the income (loss) division to be based on the ratio of capital investments. The partnership had income of $150,000 for its first year of operation. When the Income Summary is closed, the journal entry to allocate partner income is:


A) Debit Wallace, Capital $90,000; debit Simpson, Capital $60,000; credit Cash $150,000.
B) Debit Cash $150,000; credit Wallace, Capital $90,000; credit Simpson, Capital $60,000.
C) Debit Income Summary $150,000; credit Wallace, Capital $90,000; credit Simpson, Capital $60,000.
D) Debit Wallace, Capital $75,000; debit Simpson, Capital $75,000; credit Income Summary $150,000.
E) Debit Income Summary $150,000; credit Wallace, Capital $75,000; credit Simpson, Capital $75,000.

F) A) and B)
G) B) and E)

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Partnership accounting does not:


A) Use a withdrawals account for each partner.
B) Allocate net income to each partner according to the partnership agreement.
C) Tax the business entity.
D) Allocate net loss to each partner according to the partnership agreement.
E) Use a capital account for each partner.

F) C) and D)
G) A) and D)

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A partner can withdraw from a partnership by any of the following means except:


A) Receiving assets from the partnership in the amount of his/her interest.
B) Selling his/her interest to another person for cash.
C) Receiving cash from the partnership in the amount of his/her interest.
D) Close the business and liquidate the assets under the mutual agency principle.
E) Selling his/her interest to another person in exchange for assets.

F) A) and B)
G) D) and E)

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Wallace and Simpson formed a partnership with Wallace contributing $60,000 and Simpson contributing $40,000. Their partnership agreement calls for the income (loss) division to be based on the ratio of capital investments. Wallace sold one-half of his partnership interest to Prince for $55,000 when his capital balance was $78,000. The partnership would record the admission of Prince into the partnership as:


A) Debit Wallace, Capital $30,000; credit Prince, Capital $30,000.
B) Debit Wallace, Capital $55,000; credit Prince, Capital $55,000.
C) Debit Prince, Capital $55,000; credit Wallace, Capital $55,000.
D) Debit Wallace, Capital $39,000; credit Prince, Capital $39,000.
E) Debit Wallace, Capital $39,000; debit Cash $16,000; credit Prince, Capital $55,000.

F) B) and D)
G) C) and E)

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Masters, Hardy, and Rowen are dissolving their partnership. Their partnership agreement allocates income and losses equally among the partners. The current period's ending capital account balances are Masters, $15,000; Hardy, $15,000; Rowen, $30,000. After all the assets are sold and liabilities are paid, but before any contributions to cover any deficiencies, there is $54,000 in cash to be distributed. The general journal entry to record the final distribution would be:


A) Debit Masters, Capital $13,500; debit Hardy, Capital $13,500; debit Rowen, Capital $27,000; credit Cash $54,000.
B) Debit Cash $54,000; credit Rowen, Capital $13,500; credit Masters, Capital $13,500; credit Hardy, Capital $27,000.
C) Debit Masters, Capital $15,000; debit Hardy, Capital $15,000; debit Rowen, Capital $30,000; credit Loss from Liquidation $6000; credit Cash $54,000.
D) Debit Masters, Capital $15,000; debit Hardy, Capital $15,000; debit Rowen, Capital $30,000; credit Gain from Liquidation $6,000; credit Cash $54,000.
E) Debit Masters, Capital $13,000; debit Hardy, Capital $13,000; debit Rowen, Capital $28,000; credit Cash $54,000.

F) B) and E)
G) B) and C)

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Limited liability partnerships are designed to protect innocent partners from malpractice or negligence claims resulting from the acts of another partner.

A) True
B) False

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The owners of a limited liability company (LLC), who are called members, are protected with the same limited liability feature as owners of corporations.

A) True
B) False

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Assets invested by a partner into a partnership become the property of the business.

A) True
B) False

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Carter Pearson is a partner in Event Promoters. His beginning partnership capital balance for the current year is $55,000, and his ending partnership capital balance for the current year is $62,000. His share of this year's partnership income was $6,250. What is his partner return on equity?


A) 5.34%
B) 10.08%
C) 10.68%
D) 8.93%
E) 11.36%

F) C) and E)
G) D) and E)

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Wright, Bell, and Edison are partners and share income in a 2:5:3 ratio. The partnership's capital balances are as follows: Wright, $33,000, Bell $27,000 and Edison $40,000. Edison decides to withdraw from the partnership, and the partners agree not to revalue the assets upon Edison's retirement. The journal entry to record Edison's June 1 withdrawal from the partnership if Edison sells his interest to Whitney for $45,000 after the other two partners approve Whitney as partner is:


A) Debit Edison, Capital $40,000; credit Cash $40,000.
B) Debit Edison, Capital $45,000; credit Whitney, Capital $45,000.
C) Debit Edison, Capital $40,000; debit Cash $5,000; credit Whitney, Capital $45,000.
D) Debit Edison, Capital $40,000; credit Whitney, Capital $40,000.
E) Debit Edison, Capital $40,000; debit Wright, Capital $2,500; debit Bell, Capital $2,500; credit Whitney, Capital $45,000.

F) A) and E)
G) A) and D)

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