Question

1) Pell invests $50,000 in a partnership for a 10 percent interest. The partnership has total capital of $450,000 after admitting Pell. Which of the following is true?

A) Pell received a bonus of $5,000

B) The original partners' capital in the business was $420,000 before admitting Pell

C) The original partners received a bonus of $5,000

D) Pell's capital is $50,000

E) None of the above.

2) Partners L and M receive a salary of $25,000 and $50,000, respectively, and share income and losses in a 3:1 ratio, respectively. If the partnership suffers a $75,000 net loss in 2012, the entry to close the income or loss into their capital accounts is:

A) L, Capital 25,000 $ M, Capital 50,000 $ Income Summary 75,000 $

B) L, Capital 75,000 $ M, Capital 37,500 $ Income Summary 37,500 $

C) L, Capital 56,250 $ M, Capital 18,750 $ Income Summary 75,000 $

D) L, Capital 87,500 $ M, Capital 12,500 $ Income Summary 75,000 $

E) None of the above.

3) D and E are partners who have agreed to admit F, who will invest $70,000 in the partnership for a 30 percent interest. The previous capital balances were D $25,000 and E $40,000. A and B had shared profits and losses equally. The entry that records F’s admission to the partnership is:

A) Cash 70,000 $ F, Capital 70,000 $

B) Cash 55,000 $ F, Capital 55,000 $

C) Cash 70,000 $ D, Capital 1,250 $ E, Capital 1,250 $ F, Capital 67,500 $

D) F, Capital 70,000 $ Cash 70,000 $

E) None of the above.

4) G has bought H's interest in the H & I Partnership for a $50,000 direct payment to H. The capital balances before the sale were $45,000 and $60,000, respectively. The entry to record the purchase of interest in partnership is:

A) H, Capital 45,000 $ G, Capital 45,000 $

B) H, Capital 50,000 $ G, Capital 50,000 $

C) G, Capital 50,000 $ Cash 50,000 $

D) Cash 50,000 $ G, Capital 50,000 $

E) None of the above.

Answer 1

Answer to question 1 is option (C) = The original partners received a bonus of $5000.

Explanation : Pell got 10% interest in business out of total capital of $450000. Therefore Pell's capital in the business is $45000. The remaining is Bonus i.e Goodwill paid to the original partners.

Answer to question 2 is option (C) = L, Capital 56,250 $ M, Capital 18750 $ Income Summary 75000 $

Explanation : Net loss of $75000 is shared by partners in their profit sharing ration of 3:1

Answer to question 3 is option (A) = Cash 70000 $ F, Capital 70000 $

Explanation : As the total capital after F's admission is not given , it is assumed that the entire amount of 70000 $ brought by F is for Capital.

Answer to question 4 is option (D) = None of the above

Firstly if any new partner is admitted to business the consent of all existing partners are necessary. Even if "I" has agreed to admit "G" into partnership , the new partner's capital will remain same as that of old partner and the remaining 5000$ need to be treated as bonus (goodwill)