Multiple Choice Quiz

Choose the best answer for each of the following questions and enter the identifying letter in the space provided.

1		A limited liability partnership is considered an accounting entity separate from the individual partners for purposes of:
			A)	Both financial accounting and federal income taxes
			B)	Federal income taxes but not financial accounting
			C)	Financial accounting but not federal income taxes
			D)	Neither financial accounting nor federal income taxes
2		Alex and Bame, partners of Alex & Bame LLP, share net income or losses in a 2:1 ratio, respectively. Each partner receives an annual salary allowance of $6,000. If the salaries are recognized as an expense rather than as a means for division of net income, the total amount allocated to each partner for salaries and net income will be:
			A)	Less for both Alex and Bame
			B)	Unchanged for both Alex and Bame
			C)	More for Alex and less for Bame
			D)	More for Bame and less for Alex
3		Mason & Nelson LLP was formed on February 28. On that date, the following assets were invested (at current fair values): <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=gif:: ::/sites/dl/free/0072502908/51886/ch023.gif','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (1.0K)</a> The building was subject to a mortgage note payable of $30,000 that was to be assumed by the partnership. The partnership contract provided that Mason and Nelson were to share net income or losses 25% and 75% respectively. Nelson's capital account balance on February 28 is:
			A)	$190,000
			B)	$160,000
			C)	$172,500
			D)	$150,000
			E)	Some other amount
4		Based on the same facts as in question 3, if the partnership contract provides that the partners initially should have an equal interest in partnership capital with no investment of intangible assets. Mason's capital account balance on February 28 is:
			A)	$100,000
			B)	$115,000
			C)	$200,000
			D)	$230,000
			E)	Some other amount
5		Evans, Farmer, and Grove invested $40,000, $30,000, and $25,000, respectively, in Evans, Farmer & Grove LLP on June 30, 2002. They agreed to divide income or losses as follows: (1) Salaries of $10,000, $8,000, and $6,000, respectively, to Evans, Farmer, and Grove (2) Interest of 10% on beginning capital account balances (3) Remaining net income or loss divided equally (4) A minimum of $15,000 of income guaranteed to Grove If the income of the partnership for the fiscal year ended June 30, 2003, before salaries and interest allowances to partners, was $44,000, the amount of income credited to Evans is:
			A)	$17,500
			B)	$16,000
			C)	$14,667
			D)	$14,000
			E)	Some other amount
6		The admission of a new partner for a 20% interest in a partnership for an investment of $18,000 cash, with total capital to be $75,000, results in the recognition of:
			A)	Goodwill to the existing partners
			B)	Goodwill to the new partner
			C)	A bonus to the existing partners
			D)	A bonus to the new partner
7		If E is the total capital of a limited liability partnership before the admission of a new partner, F is the total capital of the partnership after the admission of the new partner, G is the amount of the new partner's investment, and H is the amount of capital credited to the new partner, there is:
			A)	Goodwill to the new partner if F is larger than (E + G) and H is less than G
			B)	Goodwill to the exiting partners if F = E + G and H is greater than G
			C)	A bonus to the new partner if F = E + G and H is greater than G
			D)	Neither a bonus nor goodwill if F is greater than (E + G) and H is greater than G
8		The total of partners' capital account balances of a limited liability partnership was $105,000, excluding goodwill. A partner whose share of net income or losses was 20% decided to withdraw from the partnership. The withdrawing partner was paid $37,000 by the partnership in final settlement. The withdrawal was improperly recorded by the goodwill method. The continuing partners' capital account balances, excluding their share of the goodwill, totaled $80,000 after withdrawal. The improperly imputed goodwill of the partnership was:
			A)	$125,000
			B)	$80,000
			C)	$70,000
			D)	$60,000
			E)	Some other amount
9		On July 1, 2002, Ann Moore and Grace Pulis formed Moore & Pulis LLP, agreeing to share net income and losses in a 2:3 ratio, respectively. Moore invested land with a current fair value of $50,000 that cost her $25,000. Pulis invested $50,000 cash. The land was disposed of for $52,100 on July 5, 2002. The amount to be recorded in Moore's capital account on formation of the partnership is:
			A)	$10,000
			B)	$20,000
			C)	$25,000
			D)	$50,000
			E)	$52,100
10		Cicero and Dino, partners of Cicero & Dino LLP, shared net income and losses in the ratio 7:3, respectively. On May 5, 2002, their capital account balances were as follows: Cicero $35,000 - Dino 30,000. On May 5, 2002, the partners agreed to admit Estes as a partner with a one-third interest in the partnership capital and net income or losses for an investment of $25,000. The new limited liability partnership was to begin with total capital of $90,000. Immediately after Estes's admission, the capital account balances of Cicero, Dino, and Estes, respectively, were:
			A)	$30,000; $30,000; $30,000
			B)	$31,500; $28,500; $30,000
			C)	$31,667; $28,333; $30,000
			D)	$35,000; $30,000; $25,000