41. A limited liability company (LLC):
I. is governed by the laws of the state in which it is formed.
II. provides liability protection to its investors.
III. does not offer pass-through taxation benefits of partnerships.
A. Both I and III.
C. Both I and II
D. I, II, and II
42. If A is the total capital of a partnership before the admission of a new partner, B is the total capital of the partnership after the admission of the new partner, C is the amount of the new partner’s investment, and D is the amount of capital credited to the new partner, then there is:
A. goodwill to the new partner if B > (A + C) and D < C.
B. goodwill to the old partners if B = A + C and D > C.
C. a bonus to the new partner if B = A + C and D > C.
D. neither bonus nor goodwill if B > (A + C) and D > C.
43. The terms of a partnership agreement provide that one of the partners is to receive a salary allowance of $30,000, plus a bonus of 20 percent of income after deduction of the bonus and the salary allowance. If income is $150,000, the bonus should be:
44. The partnership of X and Y shares profits and losses in the ratio of 60 percent to X and 40 percent to Y. For the year 2008, partnership net income was double X’s withdrawals. Assume X’s beginning capital balance was $80,000, and ending capital balance (after closing) was $140,000. Partnership net income for the year was:
45. Shue, a partner in the Financial Brokers Partnership, has a 30 percent share in partnership profits and losses. Shue’s capital account had a net decrease of $100,000 during 2008. During 2008, Shue withdrew $240,000 as withdrawals and contributed equipment valued at $50,000 to the partnership. What was the net income of the Financial Brokers Partnership for 2008?
46. Transferable interest of a partner includes all of the following except:
A. the partner’s share of the profits and losses of the partnership.
B. the right to receive distributions.
C. the right to receive any liquidating distribution.
D. the authority to transact any of the partnership’s business operations.
47. Net income for Levin-Tom partnership for 2009 was $125,000. Levin and Tom have agreed to distribute partnership net income according to the following plan:
Additional Information for 2009 follows:
1. Levin began the year with a capital balance of $75,000.
2. Tom began the year with a capital balance of $100,000.
3. On March 1, Levin invested an additional $25,000 into the partnership.
4. On October 1, Tom invested an additional $20,000 into the partnership.
5. Throughout 2009, each partner withdrew $200 per week in anticipation of partnership net income. The partners agreed that these withdrawals are not to be included in the computation of average capital balances for purposes of income distributions.
a. Prepare a schedule that discloses the distribution of partnership net income for 2009. Show supporting computations in good form.
b. Prepare the statement of partners’ capital at December 31, 2009.
c. How would your answer to part a change if all of the provisions of the income distribution plan were the same except that the salaries were $45,000 to Levin and $60,000 to Jack?
48. Paul and Ray sell musical instruments through their partnership. To bring in additional funds and expertise, they decide to admit Janet to the partnership. Paul’s capital is $400,000, Ray’s capital is $200,000, and they share income in a ratio of 7:3, respectively.
Record Janet’s admission for each of the following independent situations:
a) Janet invests $180,000 for a one-fourth interest. Goodwill is to be recorded.
b) Paul and Ray agree that some of the inventory is obsolete. The inventory account is decreased before Janet is admitted. Janet invests $190,000 for a one-fourth interest.
49. Two sole proprietors, L and M, agreed to form a partnership on January 1, 2009. The trial balance for each proprietorship is shown below as of January 1, 2009.
The LM partnership will take over the assets and assume the liabilities of the proprietors as of January 1, 2009.
a) Prepare a balance sheet, for financial accounting purposes, for the LM partnership as of January 1, 2009.
b) In addition, assume that M agreed to recognize the goodwill generated by L’s business. Accordingly, M agreed to recognize an amount for L’s goodwill such that L’s capital equalled M’s capital on January 1, 2009. Given this alternative, how does the balance sheet prepared for requirement A change?
50. The PQ partnership has the following plan for the distribution of partnership net income (loss):
Calculate the distribution of partnership net income (loss) for each independent situation below (for each situation, assume the average capital balance of P is $140,000 and of Q is $240,000).
1. Partnership net income is $360,000.
2. Partnership net income is $240,000.
3. Partnership net loss is $40,000.
51. Miller and Davis, partners in a consulting business, share profits and losses in the ratio of 3:2, respectively. Prior to recording the admission of Shaw as a new partner, Miller has a capital balance of $80,000, and Davis has a capital balance of $40,000.
For each of the following independent cases, prepare the journal entry that was made to record the admission of Shaw into the partnership.
1) Shaw purchased 20 percent of the respective capital balances of Miller and Davis, paying $20,000 cash directly to each of them.
2) Shaw invested $30,000 cash in the partnership for a 20 percent ownership interest. Total capital after recording his admission was $150,000.
3) Shaw invested $40,000 cash into the partnership for a 20 percent ownership interest. Total capital after recording his admission was $160,000.
4) Shaw invested $50,000 into the partnership for a 20 percent interest. Goodwill is to be recognized.
52. In the JAW partnership, Jane’s capital is $100,000, Anne’s is $80,000, and William’s is $75,000. They share income in a 3:2:1 ratio, respectively. William is retiring from the partnership.
Prepare journal entries to record William’s withdrawal according to each of the following independent assumptions:
a. William is paid $80,000, and no goodwill is recorded.
b. William is paid $85,000, and only his share of the goodwill is recorded.
c. William is paid $78,000, and all implied goodwill is recorded.
53. Apple and Betty are planning on beginning a new business. They plan on forming a partnership. Apple will contribute $300,000 and will not be working. Betty will be working full time. They plan on splitting profits equally. They approach you, as an accounting major, to confirm their thoughts. What do you recommend?
54. The ABC partnership had net income of $100,000 for 2009. They allocate profits and losses in the ratio 5:3:2. After closing the 12/31/2009 books they discovered that $30,000 was spent on a piece of land in December 2009 and was expensed. What should happen