F2 M9 Partnerships

Question 1

Eagle and Falk are partners with capital balances of $45,000 and $25,000 respectively. They agree to admit Robb as a partner. After the assets of the partnership are revalued, Robb will have a 25% interest in capital and profits, for an investment of $30,000. What amount should be recorded as a bonus to the original partners?

Answer 1

$5,000

Total is $100,000.
Rob gets 25% or $25,000
But Rob contributed $30,000
So Eagle and Falk get the bonus of $5,000

Question 2

Assets contributed by a partnership (or sole proprietorship) to a corporation in its formation are valued at ____ less ____.

Answer 2

Fair market value less any related liabilities assumed by the corporation.

Question 3

Assets contributed by partners to a partnership are valued at ____ net of _____.

Answer 3

Fair market value net of any related liabilities

Question 4

On April 30, Algee, Belger, and Ceda formed a partnership by combining their separate business proprietorships.
Algee contributed cash of $50,000.
Belger contributed property with a $36,000 carrying amount, a $40,000 original cost, and $80,000 fair value. The partnership accepted responsibility for the $35,000 mortgage attached to the property.
Ceda contributed equipment with a $30,000 carrying amount, a $75,000 original cost, and $55,000 fair value. Which partner has the largest capital account balance as of April 30?

Answer 4

Ceda

Question 5

Abel and Carr formed a partnership and agreed to divide initial capital equally, even though Abel contributed $100,000 and Carr contributed $84,000 in identifiable assets. Under the bonus approach to adjust the capital accounts, Carr's unidentifiable asset should be debited for:
A. $8,000
B. $16,000
C. $0
D. $46,000

Answer 5

C

Trick question.

The bonus from Abel to Carr is $8,000

Question 6

In the Adel-Brick partnership, Adel and Brick had a capital ratio of 3:1 and a profit and loss ratio of 2:1 respectively. The bonus method was used to record Colter’s admittance as a new partner. What ratio would be used to allocated, to Adel and Brick, the excess of Colter’s contribution over the amount credited to Colter’s capital account?
A. Adel and Brick’s new relative capital ratio.
B. Adel and Brick’s old profit and loss ratio
C. Adel and Brick’s old capital ratio
D. Adel and Brick’s new relative profit and loss ratio

Answer 6

B

The bonus paid has the same impact as additional net income so we profit and loss ratio

Question 7

How do you calculate the Goodwill to the original partners based on the Goodwill method of capital contributed?

Answer 7

Take the contribution of the new partner and calculate the total capital. (i.e. Contribution was $30,000 for 25% interest - $30,000 x 4 = $120,000 total capital).
Take the total capital less the contributed capital to calculate the Goodwill to the original partners.

Question 8

The Flat and Iron partnership agreement provides for Flat to receive a 20% bonus on profits before the bonus. Remaining profits and losses are divided between Flat and Iron in the ratio of 2 to 3, respectively. Which partner has a greater advantage when the partnership has a profit or when it has a loss?
    Profit  Loss
A. Flat    Flat
B. Iron    Flat
C. Flat    Iron
D. Iron    Iron

Answer 8

A

When there is a profit, Flat takes the first 20% of the profit then gets his share 2/5 which is 32% totaling 52%

When there is a loss, Flat takes a smaller portion of the loss 2/5 = 40%

Flat benefits from both

Question 9

During the current year, Young and Zinc maintained average capital balances in their partnership of $160,000 and $100,000 respectively. The partners receive 10% interest on average capital balances, and residual profit or loss is divided equally. Partnership profit before interest was $4,000. By what amount should Zinc's capital account change for the year?
A. $2,000 increase
B. $12,000 increase 
C. $11,000 decrease
D. $1,000 decrease

Answer 9

D
Young Zinc Profit
Capital 160,000 100,000 4,000
Interest 16,000 10,000 (26,000)
176,000 110,000 (22,000)
Loss alloca (11,000) (11,000) 22,000
165,000 99,000 0
Net change 5,000 (1,000) 4,000

Think about it, the $4,000 profit couldn’t have covered their percentages of interest.

Question 10

Under the bonus method, any premium paid to the retiring partner is allocated to ____.

Answer 10

The remaining partners’ accounts based on the profit and loss ratios of the remaining partners.

Question 11

When incorporating a partnership, assets and liabilities are recorded at their ____.

Answer 11

Fair value, not their book values

Question 12

Upon the formation of a partnership, tangible assets (inventory and real estate) would be recorded at ____ at the date of the investment.

Answer 12

Fair market value

Question 13

Blau and Rubi are partners who share profits and losses in the ratio of 6:4 respectively. On may 1, their respective capital accounts were as follows:
Blau $60,000, Rubi $50,000
On that date, Lind was admitted as a partner with a one-third interest in capital and profits for an investment of $40,000. The new partnership began with total capital of $150,000. Immediately after Lind’s admission, Blau’s capital should be:
A. $56,667
B. $50,000
C. $60,000
D. $54,000

Answer 13

D

Allocate Lind’s bonus to B&R, remember Lind is getting a bonus since her contribution is lower than a true third of the partnership’s assets