17.3 Learning Objective 17-3
1) James wants to invest cash so that he will have a one-third interest in Thomas and Stanley’s company. The capital balances are $6,000 Thomas, $9,000 Stanley. The admission of James would be to:
A) debit Cash $3,000; credit James, Capital $3,000.
B) debit Cash $4,500; credit James, Capital $4,500.
C) debit Cash $7,500; credit James, Capital $7,500.
D) debit Cash $12,000; credit James, Capital $12,000
2) The Brad and Marcia partnership agree to admit Fred with a one-third interest for $10,000. Brad and Marcia’s capital balances are $12,000, and $8,000, respectively, and they share profits and losses equally. The entry to admit Fred would include:
A) debit Cash $10,000; credit Fred, Capital $10,000.
B) debit Cash $10,000; credit Brad, Capital $2500; debit Marcia, Capital $2500; credit Fred, Capital $5,000.
C) debit Cash $10,000; credit Brad, Capital $5,000; credit Marcia Capital $5,000.
D) debit Cash $10,000; debit Brad, Capital $2,500; credit Marcia, Capital $2,500; credit Fred, Capital $10,000.
3) Mary sold Jill her equity in the Mary and Jill partnership for $23,000. If both Mary and Jill had a $15,000 capital balance, the entry to record this transaction would be to:
A) debit Cash $23,000; credit Jill, Capital $23,000.
B) debit Mary, Capital $15,000; credit Jill, Capital $15,000.
C) debit Cash $15,000; credit Mary, Capital $15,000.
D) debit Jill, Capital $15,000; credit Mary, Capital $15,000.
4) When a partnership is worth more than the amounts recorded, an incoming partner may:
A) be required to pay a bonus to the other partners.
B) pay a smaller amount as an initial investment.
C) have to pay the same as other partners.
D) None of these answers is correct.
5) A bonus paid by an incoming partner to the old partners is shared:
B) by the salary method.
C) on the basis of profit and loss ratio.
D) by the interest method.
6) When recording a bonus to a new partner, the new partner will:
A) pay more than what the new partner’s capital account will reflect.
B) pay the same as the other partners’ capital accounts.
C) pay less than the new partner will receive in the capital account.
D) have no bonus recorded as a bonus cannot be paid to new partners.
7) A bonus is paid to the old partners when:
A) the old partner believes the business is worth less than the amounts recorded in the accounting records.
B) the equity of a partnership is worth more than what is recorded in the accounting records.
C) the company’s earnings records are less than expected.
D) None of these answers is correct.
8) When a partner withdraws from a partnership, the company can:
A) audit the accounting records and adjust assets to fair market value.
B) credit the account of the partner that withdrew and debit Cash.
C) share any loss or profit from the historical value of assets.
D) None of the above answers is correct.
9) Katie withdrew from the partnership of Katie, Courtney, and Nathan, and accepted $10,000 cash. Her capital balance was $16,000 and the difference will be shared in a ratio of 2:1 for Courtney and Nathan, respectively. The entry would be to:
A) debit Cash $10,000; credit Nathan, Capital $10,000.
B) debit Nathan, Capital $16,000; credit Cash $16,000.
C) debit Katie, Capital $16,000; credit Cash $10,000; credit Courtney, Capital $4,000; credit Nathan, Capital $2,000.
D) debit Cash $16,000; debit Nathan, Capital $4,000; debit Courtney, Capital $2,000; credit Katie, Capital $18,000.
10) An investment by a new partner was debited to existing partners’ capital balances. This error would cause:
A) the new partner’s capital account to be understated.
B) the period end partners’ equity to be understated.
C) the period end assets to be overstated.
D) None of these is correct.