Question: Select the correct answer for each of
Select the correct answer for each of the following questions.
When property other than cash is invested in a partnership, at what amount should the noncash property be credited to the contributing partner’s capital account?
Contributing partner’s tax basis.
Contributing partner’s original cost.
Assessed valuation for property tax purposes.
Fair value at the date of contribution.
William and Martha drafted a partnership agreement that lists the following assets contributed at the partnership’s formation:
The building is subject to a $10,000 mortgage, which the partnership has assumed. The partnership agreement also specifies that profits and losses are to be distributed evenly. What amounts should be recorded as capital for William and Martha at the partnership’s formation?
Smith and Duncan are partners with capital balances of $60,000 and $20,000, respectively. Profits and losses are divided in the ratio of 60:40. Smith and Duncan decided to form a new partnership with Johnson, who invested land valued at $15,000 for a 20 percent capital interest in the new partnership. Johnson’s cost of the land was $12,000. The partnership elected to use the bonus method to record Johnson’s admission into the partnership. Johnson’s capital account should be credited for
$12,000.
$15,000.
$16,000.
$19,000.
On April 30, 20X5, Apple, Blue, and Crown formed a partnership by combining their separate business proprietorships. Apple contributed $50,000 cash. Blue contributed property with a $36,000 carrying amount, a $40,000 original cost, and $80,000 fair value. The partnership accepted responsibility for the property’s $35,000 mortgage. Crown contributed equipment with a $30,000 carrying amount, a $75,000 original cost, and $55,000 fair value. The partnership agreement specifies that profits and losses are to be shared equally but is silent regarding capital contributions. Which partner’s capital account has the largest April 30, 20X5, balance?
Apple
Blue
Crown
All capital account balances are equal
(Note: The following information is for questions 5 and 6.)
The Moon-Norbert Partnership was formed on January 2, 20X5. Under the partnership agreement, each partner has an equal initial capital balance accounted for under the goodwill method. Partnership net income or loss is allocated 60 percent to Moon and 40 percent to Norbert. To form the partnership, Moon originally contributed assets costing $30,000 with a fair value of $60,000 on January 2, 20X5, and Norbert contributed $20,000 in cash. Partners’ drawings during 20X5 totaled $3,000 by Moon and $9,000 by Norbert. Moon-Norbert’s net income for 20X5 was $25,000.
Norbert’s initial capital balance in Moon-Norbert is
$20,000.
$25,000.
$40,000.
$60,000.
Moon’s share of Moon-Norbert’s net income is
$15,000.
$12,500.
$12,000.
$7,800.
In the Crowe-Dagwood partnership, Crowe and Dagwood had a capital ratio of 3:1 and a profit and loss ratio of 2:1. They used the bonus method to record Elman’s admittance as a new partner. What ratio should be used to allocate to Crowe and Dagwood the excess of Elman’s contribution over the amount credited to Elman’s capital account?
Crowe and Dagwood’s new relative capital ratio.
Crowe and Dagwood’s new relative profit and loss ratio.
Crowe and Dagwood’s previous capital ratio.
Crowe and Dagwood’s previous profit and loss ratio.
Blue and Green formed a partnership in 20X4. The partnership agreement provides for annual salary allowances of $55,000 for Blue and $45,000 for Green. The partners share profits equally and losses in a 60:40 ratios, respectively. The partnership had earnings of $80,000 for 20X5 before any allowance to partners. What amount of these earnings should be credited to each partner’s capital account?
9. When Jill retired from the partnership of Jill, Bill, and Hill, the final settlement of her interest exceeded her capital balance. Under the bonus method, the excess
a. Was recorded as goodwill.
b. Was recorded as an expense.
c. Reduced the capital balances of Bill and Hill.
d. Had no effect on the capital balances of Bill and Hill.
Transcribed Image Text:
Contributed by William Martha $30,000 15,000 40,000 Cash $20,000 Inventory Building Furniture & Equipment 15,000 Willlam Martha a. $35,000 b. $35,000 C. $55,000 d. $60,000 $85,000 $75,000 $55,000 $60,000 Blue Green a. $40,000 b. $43,000 c. $44,000 d. $45,000 $40,000 $37,000 $36,000 $35,000
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> What factors are used to determine a reporting entity’s functional currency? Provide at least one example for which a company’s local currency may not be its functional currency?
> Define the following terms: local currency unit recording currency reporting currency
> What potential benefits might be achieved if U.S. firms are allowed to use IFRS?
> How widely used are IFRS? Can IFRS be used for listings on U.S. stock exchanges?
> Describe the basic problem of eliminating intercompany transactions with a foreign affiliate.
> Briefly discuss the International Accounting Standards Board (IASB). What is its mission? What is the composition of its membership and how long do members serve? Where is the IASB located?
> Describe the accounting for a foreign investment that is not consolidated with the U.S. company.
> Are all foreign subsidiaries consolidated? Why or why not?
> What is the logic behind the parent company’s recognizing on its books its share of the translation adjustment arising from the translation of its foreign subsidiary?
> A U.S. company paid more than book value in acquiring a foreign affiliate. How is this excess reported in the consolidated balance sheet and income statement in subsequent periods when the functional currency is the local currency unit of the foreign aff
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> Where is the remeasurement gain or loss shown in the consolidated financial statements?
> Discuss the accounting treatment and disclosure of translation adjustments. When does the translation adjustment account have a debit balance? When does it have a credit balance?
> A U.S. company has a foreign sales branch located in Spain. The Spanish branch has selected the U.S. dollar for its functional currency. Describe the methodology for remeasuring the branch’s financial statements into the U.S. Company’s reporting currency
> A Canadian-based subsidiary of a U.S. parent uses the Canadian dollar as its functional currency. Describe the methodology for translating the subsidiary’s financial statements into the parent’s reporting currency.
> Why is there increasing interest in the adoption of a single set of high-quality accounting standards?
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> Describe the process of updating the estimate of the effective annual tax rate in the second quarter of a company’s fiscal year.
> What is the difference in the application of the lower-of-cost-or-market valuation method for inventories for interim statements and annual statements?
> Describe the basic rules for computing cost of goods sold and inventory on an interim basis. In what circumstances are estimates permitted to determine costs?
> How might information on a company’s operations in different industries be helpful to investors?
> Define the following terms, which are part of the SEC terminology: Customary review Comment letter Red herring prospectus Shelf registration
> Describe the major requirements of the Sarbanes-Oxley Act of 2002.
> What types of information must be disclosed in the management discussion and analysis
> Describe Parts I and II of the Foreign Corrupt Practices Act. What is this act’s impact on companies and public accountants?
> Explain the process of incorporating a partnership.
> S. Horton contributes assets with a book value of $5,000 to a partnership. The assets have a market value of $10,000 and a remaining liability of $2,000 that the partnership assumes. If the liability is shared equally with the other three partners, what
> Partner A has a capital credit of $25,000. Partner B’s capital credit is also $25,000. Partners A and B share profits and losses in a 60:40 ratio. Which partner will receive the first payment of cash in an installment liquidation?
> Define loss absorption potential and explain its importance in determining cash distributions to partners.
> What is a proxy? What must be included in the proxy material submitted to security holders?
> In which cases of a new partner’s admission does the credit to capital equal the new partners’ investment? In which cases of a new partner’s admission is his or her capital credit less than or more than the amount of the investment?
> What types of items that specifically involve the accounting function are reported on Form 8-K?
> Present the arguments for and against the bonus method of recognizing the admission of a new partner.
> What does Regulation S-X cover? What is included in Regulation S-K?
> What is included in Form 10-K? When must a 10-K be filed with the SEC?
> Does a partner leaving the partnership require the partnership to dissolve and wind up its business? Explain how the partnership may purchase the disassociated partner’s interest in the partnership
> Assume that, because of a new law recently passed, the types of significant transactions in which a partnership engages are no longer lawful. Two of the five partners wish to wind up and terminate the partnership. Can these two partners require the partn
> Are salaries to partners a partnership expense? Why or why not?
> When must a company use a Form S-1 registration form? In what circumstances may a company use a Form S-3 registration form?
> The Good-Nite partnership agreement includes a provision for profit distribution of interest on capital balances. Unfortunately, the provision does not state the specific capital balance to be used in computing the profit share. What choices of capital b
> What types of public offerings of securities are exempted from the SEC’s comprehensive registration requirements?
> A partnership agreement specifies that profits will be shared in the ratio of 4:6:5. What percentage of profits will each partner receive? Allocate a profit of $60,000 to each of the three partners.
