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  1. Changes in partnership ownership are presumed to be arm's length transactions that may require which of the following actions?
    D. All of the above are possible
  2. The bonus method
    D. All of the above
  3. Callie is admitted to the Adams & Beal Partnership under the bonus method. Callie
    contributes cash of $20,000 and non-cash assets with a market value of $30,000 and book value of $15,000 in exchange for a 20% ownership interest in the new partnership. Prior to the admission of Callie, the capital of the existing partnership was $130,000 and an appraisal showed the partnership net assets
    were fairly stated.  What will be Callie's initial capital balance?
    A. $36,000
  4. Assume the existing capital of a partnership is $100,000. Two partners currently own the
    partnership and split profits 40/60. A new partner is to be admitted and will contribute net assets with a fair value of $50,000. An appraisal of existing partnership assets indicates accounts receivable overstated by $10,000, inventory overstated by $12,000 and land understated by $25,000. What is the total capital of the new partnership if the bonus method is being used?
    B. $128,000
  5. Under the bonus method, when a new partner is admitted to the partnership, the total capital of the new partnership is equal to:
    C. The book value of the previous partnership minus any asset write downs from book to market value plus the fair market value of the consideration paid to the existing partnership by the incoming partner
  6. If a bonus is traceable to the previous partners rather than an incoming partner, it is allocated among the partners according to the
    A. Profit-sharing percentages of the previous partnership.
  7. Callie is admitted to the Adams & Beal Partnership under the bonus method. Callie contributes cash of $20,000 and non-cash assets with a market value of $30,000 and book value of $15,000 in exchange for a 20% ownership interest in the new  partnership. Prior to the admission of Callie, the capital of the existing partnership was $130,000 and an appraisal showed the partnership net assets were fairly stated.  Adams & Beal shared profits and losses at a ratio of 80/20, respectively
    B. $2,800 increase to Beal capital
  8. Assume that the capital of an existing partnership is $90,000 and all existing assets reflect fair market values. If an incoming partner acquires a 40% interest in the partnership for $55,000, the bonus traceable to the incoming partner is
    C. $3,000
  9. Assume that the capital of an existing partnership is $130,000 and that existing assets are overvalued by $10,000. If an incoming partner acquires a 25% interest in the partnership for $37,000, goodwill traceable to the incoming partner is
    A. $2,250
  10. The admission of a new partner under the bonus method will result in a bonus to
    C. Either the new partner or the old partners, but not both
  11. Under the goodwill method
    B. The total capital of the new partnership must approximate the fair value of the entity
  12. The fair market value of a partnership can be implied by
    D. The incoming partner's market value of consideration divided by the incoming partner's percentage ownership share in the new partnership
  13. When a new partner is admitted to a partnership under the goodwill method, an original partner's capital account may be adjusted for
    B. His or her share of previously unrecorded intangible assets traceable to the original partners
  14. If goodwill is traceable to the previous partners, it is
    B. Allocated among the previous partners according to their original profit-and-loss sharing percentages
  15. Callie is admitted to the Adams & Beal Partnership under the goodwill method. Callie contributes cash of $20,000 and non-cash assets with a market value of $30,000 and book value of $15,000 in exchange for a 20% ownership interest in the new partnership. Prior to the admission of Callie, the capital of the existing partnership was $130,000 and an appraisal showed the partnership net assets were fairly stated.  What will be Callie's initial capital balance?
    B. $50,000
  16. Callie is admitted to the Adams & Beal Partnership under the goodwill method. Callie contributes cash of $20,000 and non-cash assets with a market value of $30,000 and book value of $15,000 in exchange for a 20% ownership interest in the new partnership. Prior to the admission of Callie, the capital of the existing partnership was $130,000 and an appraisal showed the partnership net assets were fairly stated.  Adams & Beal shared profits and losses at a ratio of 80/20, respectively. 

    Which of the following goodwill amounts would be recorded?
    D. $56,000 increase to Adams capital
  17. If goodwill is traceable to the incoming partner, the new partner's capital balance equals
    B. The book value of the older partnership divided by the existing partners' ownership percentage in the new partnership minus the book value of the old partnership
  18. Assume that the capital of an existing partnership is $90,000 and all existing assets reflect fair market values. If an incoming partner acquires a 40% interest in the partnership for $55,000, the goodwill traceable to the incoming partner is
    B. $5,000
  19. Assume that the capital of an existing partnership is $130,000 and that existing assets are overvalued by $10,000. If an incoming partner acquires a 25% interest in the partnership for $37,000, goodwill traceable to the incoming partner is
    C. $3,000
  20. Which of the following characterizes the bonus method, compared to the goodwill method, when unrecorded intangibles are traceable to the previous partners?
    C. This method generally produces more equitable results if the former partners do not share profits and losses in the same relationship to each other as they did before a new partner was admitted
  21. When a new partner buys an ownership interest in a partnership directly from an existing partner for more than the balance in that partner’s capital account, under the more common method of accounting for those transactions,
    C. The transaction is comparable to the sale of corporate shares of stock in the secondary market
  22. Palit buys Quincy's partnership interest in the Q-R-S partnership. Quincy thus retires, leaving Reale and Susien as Palit's co-partners. Prior to Palit entering the partnership, Quincy, Reale, and Susien split profits and losses equally. Palit pays $75,000 for Quincy's capital which, at the time, totaled $60,000. No revaluation of partnership assets or liabilities occurs at the time. In recording this event on the partnership books
    D. Palit capital is created in the amount of $60,000
  23. If an existing partner withdraws from a partnership,
    D. All of the above
  24. If goodwill is suggested by the consideration paid to a withdrawing partner,
    C. The goodwill traceable to the withdrawing partner represents the difference between the partner's capital balance and the consideration he or she receives
  25. Below are steps in which partnership distribution takes place:

    1.   Profits and losses are allocated to partner accounts.
    2.   Distributions are made to partners.
    3.   Assets must be used to discharge creditor obligations.
    4.   Partners with deficit balances should make up the balance or other partners make it up.

    In what order should these occur?
    D. 3,1,4,2
  26. Which of the following statements is correct regarding a partner's debit capital balances in a liquidation?
    D. All of these statements are correct
  27. The right of offset doctrine
    A. Sets aside the ranking that partnership loans have higher legal priority than capital to facilitate the liquidation process
  28. Under the Revised Uniform Partnership Agreement,
    A. Unsatisfied partnership creditors share pro rata with personal creditors in the assets of the partner’s estate
  29. Assume that a partnership had assets with a book value of $240,000 and a market value of $195,000, outside liabilities of $70,000, loans payable to partner Able of $20,000, and capital balances for partners Able, Baker, and Chapman of $70,000, $30,000, and $50,000.  How much would Able receive upon liquidation of the partnership assuming profits and losses are allocated equally?
    C. $75,000
  30. Assume that a partnership had assets with a book value of $240,000 and a market value of $195,000, outside liabilities of $70,000, loans payable to partner Able of $20,000, and capital balances for partners Able, Baker, and Chapman of $70,000, $30,000, and $50,000. If all outside creditors and loans to partners had been paid, how would the balance of the assets be distributed assuming that Chapman had already received assets with a value of $30,000 assuming profits and losses are allocated equally?
    D. Able: $55,000, Baker: $15,000, Chapman: $5,000
  31. If a partnership has only non-cash assets, all liabilities have been properly disbursed, and no additional liquidation expenses are expected, the maximum potential loss to the partnership in the liquidation process is:
    A. The fair market value of the non-cash assets
  32. Which of the following is not an assumption that is made when determining safe payments during a partnership liquidation?
    C. The partner with the highest capital balance will be the first to receive a safe payment
  33. Partners Dalton, Edwards, and Finley have capital balances of $40,000, 90,000 and $30,000, respectively, immediately prior to liquidation. Total remaining assets have a book value of $160,000, the liabilities having been paid. Among these remaining assets is a machine with a fair value of $35,000. The partners split profits and losses equally. Edwards covets the machine and is willing to accept it for $35,000 in lieu of cash. The other partners have no designs on specific assets, only cash in liquidation. How much cash, in addition to the machine, would be first distributed to Edwards, before any of the other partners received anything?
    A. $15,000
  34. A partner's maximum loss absorbable is calculated by
    A. Dividing the partner's capital balance by his or her profit-and-loss-sharing percentage
  35. Partners Thomas, Adams and Jones have capital balances of $24,000, $45,000, and $90,000 respectively. They split profits in the ratio of 3:3:4, respectively. Under a predistribution plan, one of the partners will get the following total amount in liquidation before any other partners get anything:
    B. $30,000
  36. Assume that a partnership had assets with a book value of $240,000 and a market value of $195,000, outside liabilities of $70,000, loans payable to partner Able of $20,000, and capital balances for partners Able, Baker, and Chapman of $70,000, $30,000, and $50,000. How would the first $100,000 of available assets be distributed assuming profits and losses are allocated equally?
    B. $70,000 to outside liabilities and $30,000 to Able

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