Penn Foster 06101202: Financial Accounting (Part 11)

Penn Foster 06101202Financial Accounting (Part 11)Questions 1-25: Select the one best answer to each question.Base your answers to questions 1 and 2 on the following information:J.J. Klein and Paul Manly formed a partnership on August 1, 20XX, by combining the assets of their separate businesses. Klein contributed $11,000 in cash, $21,600 in gross accounts receivable, and a merchandise inventory with a carrying value on his books of $19,400. Klein and Manly agreed that $800 of the accounts receivable was worthless and shouldn’t be accepted by the partnership. They also agreed on an estimate for bad debts, setting up an allowance for doubtful accounts receivable at $1,200. It was also agreed that the fair value of the merchandise inventory was $17,900.Manly contributed equipment recorded in his ledger at a cost of $40,000, with an accumulated depreciation of $12,500; Manly also contributed $15,000 in cash. Klein and Manly agreed that the equipment would be accepted by the partnership at a value of $25,000.Required:Prepare journal entries to record the investments made by the partners, using the format given in your study unit on the form provided at the back of this unit. Then complete questions 1 and 2. DO NOT send the form to us.1. When the investments are recorded on the partnership books, Klein’s capital account will be credited forA. $32,600B. $48,500C. $49,700D. $52,0002. The total cash invested by Klein and Manly amounts toA. $89,700B. $88,500C. $26,000D. $19,600Base your answers to questions 3 through 5 on the following information:Assume that Carpenter, Kneller, and Hartley are partners. Their Capital account balances were $35,000, $30,000, and $24,000, respectively, at the beginning of the current fiscal year. The partnership agreement provides for an allowance of interest at the rate of 6% on the capital balances at the beginning of the year; and salary allowances of $8,000, $11,000, and $12,000, respectivly. The remaining partnership net income is to be divided 371/2% / 371/2% / 25%.Required:Complete a schedule showing the division of partnership net income, using the format given in your study unit on the form provided at the back of this unit. Then complete questions 3 through 5. DO NOT send the form to us.3. If the net income fot the year was $63,460, the amount to be distributed to the partners for the year, after providing for salaries and interest on capital balances, isA. $6,780B. $10,170C. $27,120D. $36,3404. If you assume a net income of $30,700, by what amount would Hartley’s capital account be increased as a result of the net income distributions?A. $14,850B. $13,440C. $12,030D. $10,5905. How would you record the general journal entry to distribute the net income of a partnership? A. As a debit to the Cash account and credits to the partners’ Capital accounts B. As debits to the partner’s Capital accounts and a credit to Cash C. As a debit to the Income Summary account and credits to the partners’ Capital account D. As debits to the partners’ Capital accounts and a credit to the Income Summary account Base your answers to questions 6 and 7 on the following information: Mano, Capital 20XX 20XX Sept. 3 Perm Reduction 3,000 Jan. 1 Balance 20,000 Jul. 1 Investment 5,000 White, Capital 20XX Jan. 1 Balance 18,000 Hopkins, Capital 20XX Jan. 1 Balance 24,000 Sep. 5 Investment 4,000 For the year 20XX, the partnership reported a net income of $25,800. Required: Prepare schedules to show the division of net income, using the form provided at the back of this unit. Then complete questions 6 and 7. DO NOT send the form to us. 6. If interest of 7% is to be allowed on the partners’ Capital account balances at the beginning of the year; the amount of net income remaining for distribution isA. $25,800 B. $21,460 C. $6,438 D. $4,340 7. The first $10,000 of the net income is to be divided in the ratio of 5/3/2, and the remained is to be distributed equally. Mano would receiveA. $5,000.00B. $5,266.67C. $8,266.67D. $10,266.67Base your answers to questions 8 through 10 on the following information: The partnership of Gagnon, Ruddy and Featro plans to dissolve the business which they’ve operated for a number of years. Gagnon, Ruddy and Featro share profits and losses 50%, 30%, and 20%, respectively. Following are the accounts and their balances per partnership prior to liquidation: Cash 7,000 Accounts receivable 22,500Merchandise inventory 27,200Office equipment 9,800 Accumulated Depreciation – Office equipment 1,300 Accounts payable 12,900Gagnon, Capital 17,700Ruddy, Capital 15,500Featro, Capital 19,100 Additional data: a. Merchandise inventory was sold for $24,000. b. Accounts receivable were sold for $19,200. c. Office equipment was sold for $9,200. Gains or losses should be reflected in an account titled “Gain or Loss from Realization.” Required: Prepare entries for the transactions given in questions 8 through 10, using the form provided at the back of this unit. Then complete these questions. DO NOT send the form to us.8. The journal entry required to record the sale of assets is A. Cash 52,400 Accumulated Depreciation – Office Equipment 1,300 Merchandise Inventory 24,000 Accounts Receivable 19,200 Gain or Loss from Realization 10,500 B. Cash 52,400 Accumulated Depreciation – Office Equipment 1,300 Gain or Loss from Realization 5,800 Merchandise Inventory 27,200 Office Equipment 9,800 Accounts Receivable 22,500 B. Gain or Loss from Realization 5,800 Merchandise Inventory 1,900 Office Equipment 600 Accounts Receivable 3,300 D. Cash 52,400 Gain or Loss from Realization 52,400 9. The journal entry to record the payment in full of all liabilities and the partners’ capital claim is A. Gagnon, Capital 14,800 Ruddy, Capital 13,760 Featro, Capital 17,940 Accounts Payable 12,900 Cash 33,600 B. Gagnon, Capital 14,800 Ruddy, Capital 13,760 Featro, Capital 17,940 Accounts Payable 12,900 Cash 59,400 C. Gagnon, Capital 17,700 Ruddy, Capital 15,500 Featro, Capital 19,100 Accounts Payable 12,900 Gain or Loss on Sale of Assets 5,800 Cash 59,400 D. Gagnon, Capital 17,700 Ruddy, Capital 15,500 Featro, Capital 19,100 Accounts Payable 12,900 Gain or Loss on Sale of Assets 4,500 Cash 60,700 10. Which one of the following journal entries allocates the net gain or loss resulting from the sale of assets? A. Gagnon, Capital 2,900 Ruddy, Capital 1,740 Featro, Capital 1,160 Cash 5,800 B. Gagnon, Capital 2,900 Ruddy, Capital 1,740 Featro, Capital 1,160 Gain or Loss on Sale of Assets 5,800 C. Gain or Loss on Sale of Assets 5,800 Gagnon, Capital 2,900 Ruddy, Capital 1,740 Featro, Capital 1,160 D. Cash 5,800 Gagnon, Capital 2,900 Ruddy, Capital 1,740 Featro, Capital 1,160 11. Select the best description of a limited partner. A. One who is known to the public as a partner because his or her name appears inthe company name B. One who is generally an active manager of the business C. One who has a predetermined maximum liability D. One who loses the most when profits are below par 12. When a partnership is compared with a corporation, differences in accounting procedures arise when transactions affect A. owners’ equity. B. revenue. C. liabilities. D. assets. 13. When a partnership is liquidated, any assets realized should be distributed first to the A. partners according to their Capital account balances. B. partners’ outstanding creditors. C. partners according to the income-and-loss-sharing ratio in the partnership agreement. D. partners’ loans to the partnership. 14. In the firm of Cole and Hare, the partners share income and losses on the basis of their capital balances at the beginning of each period. Assume beginning capital balances of $180,000 and $150,000, respectively, and a net income of $165,000 for the period. What will the income distribution be?A. Cole $75,000 and Hare $90,000B. Cole $18,000 and Hare $15,000C. Cole $82,500 and Hare $82,500D. Cole $90,000 and Hare $75,00015. A partnership may not be terminated by theA. withdrawal of a partner.B. death of a partner.C. voluntary agreement of all partners to liquidate the business.D. personal bankruptcy of a partner.16. Dave Dietz contributes $7,500 to an oil and gas exploration venture that’s being promoted by the Mesa Petroleum Limited Partnership. Dietz’s liability is limited to his contribution to the partnership and Dietz will be actively involved in the operation of the partnership. Dietz can be considered a(n)A. nominal partner.B. secret partner.C. active partner.D. silent partner.17. Which one of the following does not characterize partnerships?A. Partner liability is usually unlimited.B. The life of a partnership is unpredictable.C. The main difference in accounting for a partnership versus a proprietorship is due to transactions affecting owners’ equity.D. Partner liability is always limited.18. Henry Gondorff and Joe Smeal create a partnership at the beginning of 20XX. They agree to share profits and losses equally. For the year 20XX, Henry Gondorff contributes $5,000 cash, $2,000 worth of IBM common stock, and a $1,500 certificate of deposit (CD) to the partnership. The partnership earns a net income of $48,000 during 20XX. Gondorff withdraws $10,500. After the partnership’s books are closed for the year, the ending balance in Gondorff’s capital account isA. ($2,000).B. $8,500.C. $22,000.D. $46,000.19. Given the following information, determine the respective profit-and-loss ratios for partners George and Herman. George HermanInitial contribution: Cash 10,000 50,000Property (Market Value) 30,000Partner’s share of profits for 20XX 75,000 75,000A. 44%; 56%B. 50%; 50%C. 48%; 52%D. 52%; 48%20. Which one of the following partnership profit-and-loss methods would be valid in the event the partnership agreement is silent as to the distribution of partnership income?A. An agreed-upon ratio other than equalB. Ratios based upon the capital account balances at the beginning of the yearC. Ratios based upon management contributionD. An equal division among all partners21. Joey Gladstone receives an annual salary of $30,000 from a business he started with one partner. Based on the information given below, which one of the following partnership income distribution methods would provide Joey Gladstone with the highest income for the year? Beginning capital balance 100,000Partnership profit (after salaries) 275,000Gladstone’s salary 30,000Applicable interest rate 10% A. An equal division of partnership profit after salary distribution B. Gladstone to receive 40% of partnership profit after salary distribution plus interest on his beginning capital balance C. Gladstone to receive interest on his beginning capital balance and an equal division of partnership profit after his salary distribution D. Gladstone to receive his salary and 60% of profits after salary distribution 22. Using the information in question 21 and assuming that Gladstone made no withdrawals (including salary) during the year, what would be the balance in Gladstone’s capital account at year’s end if Gladstone were to receive 40% of partnership profit after receiving his salary?A. $110,000B. $140,000C. $210,000D. $240,00023. Bill Elliott loans $100,000 to his partnership, the ExecRace limited partnership. The loan is to be repaid over 5 years. The interest charge will be paid in cash at the end of each year. The $100,000 principal will be repaid at the end of the fifth year. The stipulated interest charge is 9%. Which one of the following is the correct partnership entry to record the interest on the loan one year after the loan is made?A. Interest Expense $9,000 Cash $9,000B. Interest Expense $9,000 Bill Elliott, Capital $9,000C. Operating Expense $9,000 Bill Elliott, Capital $9,000D. Operating Expense $9,000 Long-Term Liability $9,000Base your answers to questions 24 and 25 on the following information. The partnership of Pete, Marwick, and Mitchell is about to lose Mitchell to retirement. Mitchell wants a cash distribution of his equity balance. The existing partnership agreement requires that all assets and liabilities be revalued prior to a termination of any partnership interest. Profits and losses were shared on a 50%, 25%, 25% basis for Pete, Marwick, and Mitchell, respectively. Balance sheet items for the partnership are as follows: Assets: Book Value Market ValueCash 20,000Inventory 725,000 800,000Equipment 150,000 100,000 895,000 Liabilities: Accounts Payable 30,000 Partners’ Equity: Pete 400,000 Marwick 265,000 Mitchell 200,000 865,000 24. Mitchell’s cash distribution to terminate his partnership interest will beA. $200,000.B. $206,250.C. $225,000.D. $275,000.25. If Mitchell was willing to settle his share of the partnership for $100,000, Pete and Marwick’s capital accounts would have ending balances ofA. $466,666; $298,333.B. $450,000; $315,000.C. $462,500; $327,500.D. $483,333; $306,667.