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Multiple Choice Quiz
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1
Which one of the following is a reason for the popularity of partnerships as a legal form for businesses?
A)Partnerships avoid the double taxation of income that is found in corporations.
B)Partnerships require a written Articles of Partnership.
C)In some cases, losses may be used to offset gains for income tax purposes.
D)Partners in partnerships are not subject to unlimited liability.
E)Partnerships avoid mutual agency.
2

Algood and Gaw began a partnership on January 2 of the current year. Algood invested cash of $150,000 as well as inventory costing $30,000, but with a current appraised value of $50,000. Gaw contributed land with a $60,000 book value and a $90,000 fair market value. The partnership also accepted responsibility for a $70,000 note payable owed in connection with the land. The partners agreed to begin operations with equal capital balances.

Assuming that the bonus method was used by this partnership, what was Algood's initial capital balance?
A)$200,000
B)$145,000
C)$110,000
D)$120,000
E)$85,000
3

Algood and Gaw began a partnership on January 2 of the current year. Algood invested cash of $150,000 as well as inventory costing $30,000, but with a current appraised value of $50,000. Gaw contributed land with a $60,000 book value and a $90,000 fair market value. The partnership also accepted responsibility for a $70,000 note payable owed in connection with the land. The partners agreed to begin operations with equal capital balances.

Assuming that the goodwill method was used by this partnership, what is the amount of goodwill and the amount of Gaw's initial capital balance?

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A)A
B)B
C)C
D)D
E)E
4
The partnership of Adams and Washington decided to admit Jefferson as a partner with a 20% interest. Jefferson invested $60,000 in cash into the partnership. Adams' and Washington's capital accounts and their profit and loss sharing ratios are shown below:

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If the partnership used the goodwill method, how much goodwill should be recognized by this transaction?
A)$60,000
B)$90,000
C)$110,000
D)$150,000
E)$300,000
5
The partnership of Adams and Washington decided to admit Jefferson as a partner with a 20% interest. Jefferson invested $60,000 in cash into the partnership. Adams' and Washington's capital accounts and their profit and loss sharing ratios are shown below:

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If the partnership used the goodwill method, what would be the capital balances for Adams, Washington, and Jefferson after Jefferson's investment was recorded?

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A)A
B)B
C)C
D)D
E)E
6
The partnership of Adams and Washington decided to admit Jefferson as a partner with a 20% interest. Jefferson invested $60,000 in cash into the partnership. Adams' and Washington's capital accounts and their profit and loss sharing ratios are shown below:

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If the partnership used the bonus method, what would be the capital balances for Adams, Washington, and Jefferson after Jefferson's investment was recorded?
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A)A
B)B
C)C
D)D
E)E
7

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Assuming that each partner withdraws the maximum amount, how much income is allocated to Donald in the current year?
A)$73,000
B)$33,000
C)$22,000
D)$55,000
E)$81,000
8

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Assuming that each partner withdraws the maximum amount, what is each partner's capital account balance at the end of the current year?
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A)A
B)B
C)C
D)D
E)E
9
As of December 31 of the current year, the Manhattan Co. partnership had the following capital balances:

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Profits/Losses are split on a 4:3:2:1 basis, respectively. Adams decided to leave the partnership and was paid $324,000 from the business based on the original contractual agreement.

If the goodwill method is applied, what is the total amount of goodwill?
A)$50,000
B)$72,000
C)$21,000
D)$80,000
E)$89,000
10
As of December 31 of the current year, the Manhattan Co. partnership had the following capital balances:

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Profits/Losses are split on a 4:3:2:1 basis, respectively. Adams decided to leave the partnership and was paid $324,000 from the business based on the original contractual agreement.

If the goodwill method is applied, what is the capital for Scott after Adams' withdrawal?
A)$425,000
B)$432,000
C)$416,000
D)$475,000
E)$437,000
11
Which of the following is not a characteristic of a partnership?
A)Limited life
B)Mutual agency
C)Unlimited liability
D)Double taxation of income
E)Ease of formation
12
Paul and Mark are partners having capital balances of $50,000 and $60,000, respectively, and share profits and losses equally. Jay is going to invest $65,000 into the business to acquire a one-third ownership interest. If the goodwill method is used to record Jay's admission to the partnership:
A)Jay's capital will be $58,333.
B)Mark's capital will be $70,000.
C)Paul's capital will be $46,667.
D)Total capital will be $175,000.
E)Goodwill will be recorded at $15,000.
13
Paul and Mark are partners having capital balances of $50,000 and $60,000, respectively, and share profits and losses equally. Jay is going to invest $65,000 into the business to acquire a one-third ownership interest. If the bonus method is used to record Jay's admission to the partnership:
A)Jay's capital will be $58,333.
B)Mark's capital will be $70,000.
C)Paul's capital will be $46,667.
D)Total capital will be $195,000.
E)Goodwill will be recorded at $15,000.
14
The High and Low partnership agreement stipulates that profits and losses be assigned in the following manner:

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During the current year, the partnership had a net income $50,000 before the bonus and salary allowance. Low's equity in the partnership would:
A)Increase.
B)Increase the same amount as High's.
C)Decrease.
D)Decrease the same amount as High's.
E)Not change.
15
Paul and Mark form a partnership on January 1 of the current year. Paul contributes $50,000 and Mark contributes $100,000 and a building worth $200,000. The building is subject to a mortgage of $40,000, which is assumed by the partnership. Paul and Mark agree to share profits and losses equally. Mark's beginning capital account should be:
A)$300,000.
B)$280,000.
C)$155,000.
D)$260,000.
E)$150,000.





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