Partnership Accounting
Exam Answer Key
Course Introduction
Partnership Accounting is a specialized area of accounting that focuses on the financial principles and practices relevant to partnerships, which are business entities owned and operated by two or more individuals. This course covers the formation, operation, and dissolution of partnerships, as well as the distribution of profits and losses, changes in partnership structure such as admission or retirement of partners, and revaluation of assets and liabilities. Students will learn to prepare and analyze partnership financial statements, allocate income, and comply with legal and tax aspects unique to partnerships. The course emphasizes problem-solving and real-world applications to prepare students for handling the complex accounting challenges faced in partnership businesses.
Recommended Textbook
Advanced Accounting 11th Edition by Floyd A. Beams
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Chapter 1: Business Combinations
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Q1) In the business combination of Polka and Spot,
A) all of the items listed above are treated as expenses.
B) all of the items listed above except the cost of registering and issuing the securities are included in the purchase price
C) the costs of registering and issuing the securities are deducted from the fair market value of the common stock used to acquire Spot.
D) only the costs of closing duplicate facilities, the salaries of Polka's employees assigned to the merger, and the costs of the shareholders' meeting would be treated as expenses.
Answer: C
Q2) According to FASB Statement 141R, which one of the following items may not be accounted for as an intangible asset apart from goodwill?
A) A production backlog
B) A talented employee workforce
C) Noncontractual customer relationships
D) Employment contracts
Answer: B
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Chapter 2: Stock Investments Investor Accounting and Reporting
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Q1) In reference to the determination of goodwill impairment, which of the following statements is correct?
A) The goodwill impairment test under FASB 142 is a three-step process.
B) If the reporting unit's fair value exceeds its carrying value, goodwill is unimpaired.
C) Under FASB 142, firms must first compare carrying values (book values) at the firm level.
D) All of the above are correct.
Answer: B
Q2) Firms must conduct impairment tests more frequently than annually when A) other shareholders hold more than 50% interest.
B) a more-likely-than-not expectation exists that a reporting unit will be sold or disposed of.
C) a specific unit does not have publicly traded stock.
D) using the equity method.
Answer: B
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Chapter 3: An Introduction to Consolidated Financial Statements
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Q1) In the preparation of consolidated financial statements, which of the following intercompany transactions must be eliminated as part of the preparation of the consolidation working papers?
A) All revenues, expenses, gains, losses, receivables, and payables
B) All revenues, expenses, gains, and losses but not receivables and payables
C) Receivables and payables but not revenues, expenses, gains, and losses
D) Only sales revenue and cost of goods sold
Answer: A
Q2) On July 1, 2011, when Salaby Company's total stockholders' equity was $360,000, Pogana Corporation purchased 14,000 shares of Salaby's common stock at $30 per share.Salaby had 20,000 shares of common stock outstanding both before and after the purchase by Pogana, and the book value of Salaby's net assets on July 1, 2011 was equal to the fair value.On a consolidated balance sheet prepared at July 1, 2011, goodwill would be
A) $60,000.
B) $85,714.
C) $100,000.
D) $240,000.
Answer: D
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Chapter 4: Consolidated Techniques and Procedures
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Q1) What is the amount of total assets?
A) $1,380,000
B) $1,402,000
C) $1,470,000
D) $1,875,000
Q2) What is the amount of consolidated Retained Earnings?
A) $224,000
B) $259,200
C) $304,000
D) $324,000
Q3) Which one of the following will increase consolidated retained earnings?
A) An increase in the value of goodwill associated with a subsidiary subsequent to the parent's date of acquisition
B) The amortization of a $10,000 excess in the fair value of a note payable over its recorded book value
C) The depreciation of a $10,000 excess in the fair value of equipment over its recorded book value
D) The sale of inventory by a subsidiary that had a $10,000 excess in fair value over recorded book value on the parent's date of acquisition
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Chapter 5: Intercompany Profit Transactions - Inventories
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Q1) The 2011 consolidated income statement showed cost of goods sold of A) $500,000.
B) $516,000.
C) $532,000.
D) $660,000.
Q2) Salli Corporation regularly purchases merchandise from their 90%-owner, Playtime Corporation.Playtime purchased the 90% interest at a cost equal to 90% of the book value of Salli's net assets.At the time of acquisition, the book values and fair values of Salli's assets and liabilities were equal.Playtime makes their sales to Salli at 120% of cost.In 2012, Salli reported net income of $460,000, and made purchases totaling $172,000 from Playtime.Although Salli had no inventory on hand at the beginning of 2012 that they had purchased from Playtime, at year end, they had $51,600 of this merchandise in inventory.
Required:
1.Determine the unrealized profit in Salli's inventory at December 31, 2012.
2.Compute Playtime's income from Salli for 2012.
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Chapter 6: Intercompany Profit Transactions - Plant Assets
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Q1) The 2011 unrealized gain from the intercompany sale
A) should be recognized in consolidation in 2011 by a working paper entry.
B) should be eliminated from consolidated net income by a working paper entry that credits land for $14,000.
C) should be eliminated from consolidated net income by a working paper entry that debits land for $14,000.
D) should be eliminated from consolidated net income by a working paper entry that credits gain on sale of land for $14,000.
Q2) Which of the following is correct?
A) No consolidation working paper entry is required for this transaction in 2011.
B) A consolidation working paper entry is required only if the subsidiary was less than 100% owned in 2011.
C) A consolidation working paper entry is required each year that Sidd has the land.
D) A consolidated working paper entry was required only if the land was held for resale in 2011.
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Chapter 7: Intercompany Profit Transactions - Bonds
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Q1) Prussia Corporation owns 80% the voting stock of Stad Corporation.On January 1, 2010, Prussia paid $391,000 cash for $400,000 par of Stad's 10% $1,000,000 par value outstanding bonds, due on April 1, 2015.Stad's bonds had a book value of $1,045,000 on January 1, 2010.Straight-line amortization is used.The gain or loss on the constructive retirement of $400,000 of Stad bonds on January 1, 2010 was reported in the 2010 consolidated income statement in the amount of
A) $14,000.
B) $21,600.
C) $23,000.
D) $27,000.
Q2) With respect to the bond purchase, the consolidated income statement of Pfadt Corporation and Subsidiary for 2011 showed a gain or loss of A) $ 4,500.
B) $ 5,000.
C) $10,800.
D) $12,000.
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Chapter 8: Consolidations - Changes in Ownership
Interests
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Q1) At December 31, 2012 year-end, Lapwing Corporation's investment in Ground Inc.was $200,000 consisting of 80% of Ground's $250,000 stockholders' equity on that date.On April 1, 2013, Lapwing sold 20% interest (one-fourth of its holdings)in Ground for $65,000.During 2013, Ground had net income of $75,000(earned uniformly)and on July 1, 2013, Ground paid dividends of $40,000.Lapwing uses the equity method to account for the investment.
Required:
1.What is the gain or loss on sale of the 20% interest?
2.Record the journal entries for Lapwing for the year ending December 31, 2013.Use the actual-sale-date assumption.
Q2) Noncontrolling interest share for 2010 is
A) $21,000.
B) $32,400.
C) $36,000.
D) $50,000.
Q3) A 15% stock dividend by a subsidiary causes
A) the parent company investment account to decrease.
B) the parent company investment account to remain the same.
C) the parent company investment account to increase.
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D) the noncontrolling interest equity to increase.
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Chapter 9: Indirect and Mutual Holdings
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Q1) The net income reported for Pahm Corporation for the current year is
A) $504,800.
B) $516,800.
C) $545,200.
D) $557,200.
Q2) Paglia Corporation owns 80% of Aburn Corporation and has separate net income of $200,000 for 2010.Aburn Corporation has separate net income of $100,000 and owns 70% of the outstanding stock of Badley Corporation.Badley Corporation has separate net income of $80,000.(Separate net incomes exclude investment income.)The cost of each investment was equal to book value and fair value.The controlling interest share of consolidated net income for 2010 is
A) $324,800.
B) $328,800
C) $344,800.
D) $344,800
Q3) The amount of noncontrolling interest share for the current year is
A) $69,000.
B) $85,000.
C) $95,000.
D) $99,000.
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Chapter 10: Subsidiary Preferred Stock, Consolidated
Earnings Per Share, and Consolidated Income Taxation
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Q1) Palmquist Corporation and its 80%-owned subsidiary, Sadler Corporation, are members of an affiliated group.They do not file consolidated tax returns.Sadler had $3,000,000 of income and paid $1,000,000 dividends in 2010.Palmquist and Sadler had 35% income tax rates.What amount of Sadler's dividends is taxable to Palmquist in 2010?
A) $0
B) $ 70,000
C) $160,000
D) $200,000
Q2) Palm owns a 70% interest in Sable, a domestic subsidiary.Sable is not part of Palm's affiliated group.Palm will pay taxes on
A) none of the dividends it receives from Sable.
B) 20% of the dividends it receives from Sable.
C) 66% of the dividends it receives from Sable.
D) 80% of the dividends it receives from Sable.
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Chapter 11: Consolidation Theories, Push-Down Accounting, and Corporate Joint Ventures
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Q1) Anthony and Cleopatra create a joint venture to distribute artifacts.Anthony contributes 70% and Cleopatra 30% of the cash for assets purchased from Tomb Company.How would Anthony report information about Cleopatra on Anthony's financial statements?
A) Not at all
B) In a footnote
C) As a liability
D) As a noncontrolling interest
Q2) Under the parent company theory, what amount of goodwill was reported on the consolidated balance sheet at December 31, 2011?
A) $148,000
B) $153,000
C) $154,400
D) $160,000
Q3) Under GAAP, the ________ will include the variable interest entity in consolidated financial statements.
A) special purpose entity
B) limited liability company
C) trust
D) primary beneficiary
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Chapter 12: Derivatives and Foreign Currency: Concepts and Common Transactions
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Q1) Which of the following is a true statement regarding the recording of a transaction which involves foreign currency?
A) A transaction is always settled in the currency in which it is denominated.
B) A transaction is always measured in the currency in which it is denominated.
C) A transaction is always settled in the currency in which it is measured.
D) A transaction is always recorded in the currency in which it is denominated.
Q2) On October 15, 2011, Napole Corporation, a French company, ordered merchandise listed on the internet for 20,000 Euros from Adams Corporation, a U.S.corporation.The euro rate was $1.20 (U.S.dollars)on October 15.On November 15, 2011 Adams shipped the goods and billed Napole the purchase price of 20,000 Euros when the euro rate was $1.30.Napole paid the bill on December 10, 2011, and Adams immediately exchanged the 20,000 Euros for US dollars when the Euro rate was $1.28 on December 10, 2011. Required:
Compute the foreign currency gain or loss on the December 31, 2011 financial statements of Adams and show the related journal entries.
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Chapter 13: Accounting for Derivatives and Hedging Activities
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Q1) Assuming a present value factor of 1 for simplicity, what is the fair value of this forward contract on November 2?
A) $-0-
B) $100 asset
C) $100 liability
D) $38,100 asset
Q2) Cirtus Corporation, a U.S.corporation, placed an order for inventory from a Mexican supplier on September 18 when the spot rate was $0.0840 = 1 peso.The invoice price will be denominated in pesos.At that time, they entered into a 30-day forward contract (designated as a fair value hedge of the firm commitment to purchase)to purchase 860,000 pesos at a forward rate of $0.0810.On October 18 when the inventory was received, the spot rate was $0.0890.At what amount should the inventory be carried on Cirtus' books?
A) $69,660
B) $72,240
C) $76,540
D) $860,000
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Chapter 14: Foreign Currency Financial Statements
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Q1) A U.S.parent corporation loans funds to a foreign subsidiary to be used to purchase equipment.The loan is denominated in U.S.dollars and the functional currency of the subsidiary is the euro.This intercompany transaction is a foreign currency transaction of
A) neither the subsidiary nor the parent, as it is eliminated as part of the consolidation procedure.
B) the subsidiary but not the parent.
C) both the subsidiary and the parent.
D) the parent but not the subsidiary.
Q2) Exchange gains or losses from remeasurement appear
A) in the continuing operations section of the consolidated income statement.
B) as an extraordinary item on the consolidated income statement.
C) as other comprehensive income typically reported in a statement of stockholders' equity.
D) as an adjustment to the beginning balance of retained earnings on the consolidated Statement of retained earnings.
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Chapter 15: Segment and Interim Financial Reporting
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Q1) Which of the following is not a quantitative threshold for determining a reportable segment?
A) Segment assets are 10% or more of the combined assets of all operating segments.
B) The absolute value of a segment's profit or loss is 10% or more of the greater of (1) the combined reported profit of all operating segments that reported a profit or (2) the absolute value of the combined reported loss of all operating segments that reported a loss.
C) Segment reported revenue, including intersegment revenues, is 10% or more of the combined revenue (both internal and external) of all operating segments.
D) Segment residual profit after the cost of equity is 10% or more of the combined residual profit of all operating segments.
Q2) Which of the following conditions would not indicate that two business segments should be classified as a single operating segment?
A) They have similar amounts of intersegment revenues or expenses.
B) They have a similar distribution method for products.
C) They have similar production processes.
D) They have similar products or services.
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Chapter 16: Partnerships - Formation, Operations, and Changes in Ownership Interests
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Q1) What will the profit and loss sharing ratios be after Oran's investment?
A) 1:2:4:2
B) 2:3:5:2
C) 3:4:6:2
D) 4:6:10:5
Q2) What is the weighted-average capital for Bertram and Ernest in 2011?
A) $224,000 and $245,000
B) $203,333 and $221,167
C) $221,333 and $239,167
D) $256,000 and $220,000
Q3) In a limited partnership, a general partner
A) is excluded from management of the business.
B) is not entitled to a bonus at the end of the year.
C) has limited liability for partnership debt.
D) has unlimited liability for partnership debt.
Q4) Partnerships
A) are required to prepare annual reports.
B) are required to file income tax returns but do not pay Federal income taxes.
C) are required to file income tax returns and pay Federal income taxes.
D) are not required to file income tax returns or pay Federal income taxes.
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Chapter 17: Partnership Liquidation
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Q1) Which of the following procedures is acceptable when accounting for a deficit balance in a partner's capital account during partnership liquidation, if the partner with a negative capital balance is personally insolvent?
A) The partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to zero.
B) The negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to all the partners.
C) The negative capital balance may be absorbed by those partners having a positive capital balance according to the residual profit and loss sharing ratios that apply to those partners having positive balances.
D) The partner with a negative capital balance must contribute personal assets to the partnership that are sufficient to bring the capital account to the same level of the other partners' capital accounts.
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Chapter 18: Corporate Liquidations and Reorganizations
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Q1) A petition commencing a case against a corporate debtor
A) can be filed only under Chapter 7 of the bankruptcy act.
B) can be filed only under Chapter 11 of the bankruptcy act.
C) can be filed under either Chapter 7 or Chapter 11 of the bankruptcy act.
D) will be determined by the trustee whether it shall be Chapter 7 or Chapter 11 of the bankruptcy act.
Q2) A primary difference between voluntary and involuntary bankruptcy petitions is that A) creditors file the petition in an involuntary filing. B) trustees are not used in an voluntary filing.
C) voluntary petitions are not subject to review by the bankruptcy court.
D) the debtor corporation files the petition in an involuntary filing.
Q3) Oceana Corporation is being liquidated under Chapter 7 of the Bankruptcy Act.The trustee has determined that the unsecured claims will receive $.35 on the dollar.Loans-R-Us holds a $1,000,000 mortgage note receivable from Oceana that is secured by building and equipment with a $1,200,000 book value and a $900,000 fair value.
Required:
How much of the mortgage receivable will Loans-R-Us recover?
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Chapter 19: An Introduction to Accounting for State and Local Governmental Units
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Q1) Under the modified accrual basis of accounting, revenues are recognized in the period
A) when the relevant service is done.
B) when they are collected.
C) when the paying entity is billed.
D) when they become both measurable and available.
Q2) When examining revenue transactions, which of the following transactions is classified as an exchange transaction?
A) When a homeowner pays property taxes
B) When a university receives a federal grant that mandates a certain type of research activity
C) When an aquatic center receives cash for a group swim
D) When an employer deducts money for state tax withholding
Q3) Government-wide financial statements include a
A) balance sheet, an income statement, and a statement of cash flows.
B) statement of net assets, a statement of activities, and a statement of cash flows.
C) statement of net assets and a statement of activities.
D) statement of activities and a statement of cash flows.
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Chapter 20: Accounting for State and Local Governmental Units
- Governmental Funds
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Q1) The proceeds from a bond issuance for the construction of a new public school should be recorded in the ________ fund at the time the bonds are sold.At the time of the bond issue, the debit is to cash and the credit is to ________.
A) capital projects; revenues
B) general; bonds payable
C) general; other financing sources
D) capital projects; other financing sources
Q2) A Capital Projects Fund awards the construction of a building to a construction contractor at a contract cost of $1,000,000.What entry is prepared by the Capital Projects Fund?
A) Debit Expenditures $1,000,000, Credit Liability $1,000,000
B) Debit Building $1,000,000, Credit Expenditures $1,000,000
C) Debit Other Financing Uses $1,000,000, Credit Expenditures $1,000,000
D) Debit Encumbrances $1,000,000, Credit Reserve for Encumbrances $1,000,000
Q3) The proper sequence of events is
A) purchase order, appropriation, encumbrance, expenditure.
B) purchase order, encumbrance, expenditure, appropriation.
C) appropriation, encumbrance, purchase order, expenditure.
D) appropriation, purchase order, encumbrance, expenditure.
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Chapter 21: Accounting for State and Local Governmental Units
- Proprietary and Fiduciary Funds
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Q1) The financial statements of proprietary funds are similar to business enterprises with the exception that proprietary funds do not
A) report fixed assets.
B) report property taxes.
C) separate current and noncurrent assets.
D) report noncurrent liabilities.
Q2) What basis of accounting is used by fiduciary funds?
A) Modified accrual accounting
B) Accrual accounting
C) Cash basis accounting
D) Present value accounting
Q3) Enterprise funds are accounted for in a manner similar to A) internal service funds.
B) capital project funds.
C) special revenue funds.
D) debt service funds.
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Chapter 22: Accounting for Not-For-Profit Organizations
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Q1) For nonprofit, nongovernmental organizations, unconditional promises to give that include promises of payments due in future periods (next year or later)are reported as
A) unrestricted revenues.
B) unrestricted support.
C) deferred revenues until payment is received.
D) restricted revenues.
Q2) In a not-for-profit, private university, the federal grant funds given directly to students for financial aid are an example of
A) a bequest.
B) an agency transaction.
C) unrestricted revenue.
D) a restricted contribution.
Q3) Which one of the following statements is not required for voluntary health and welfare organizations?
A) A statement of financial position
B) A statement of activities
C) A statement of functional expenses
D) A statement of changes in net assets
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Chapter 23: Estates and Trusts
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Q1) Under the Uniform Probate Code, the personal representative must inform the heirs and devisees of his or her appointment and provide other selected information within how many days of the appointment?
A) 10 days
B) 20 days
C) 30 days
D) 60 days
Q2) Which of the following is a gift of an object to a devisee?
A) A general devise
B) A specific devise
C) A testamentary allocation
D) An administrative devise
Q3) Under the Uniform Probate Code, the term "personal representative" refers to which of the following?
A) An executor, but not an administrator
B) An administrator, but not an executor
C) Neither an executor nor an administrator
D) Either an executor or an administrator
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