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 Chapter 14

Partnerships: Formation and Operation

Multiple Choice Questions

1. Cherryhill and Hace had been partners for several years, and they decided to
admit Quincy to the partnership. The accountant for the partnership believed
that the dissolved partnership and the newly formed partnership were two
separate entities. What method would the accountant have used for recording
the admission of Quincy to the partnership?

A. the bonus method.

B. the equity method.

C. the goodwill method.

D. the proportionate method.

E. the cost method.

2. When the hybrid method is used to record the withdrawal of a partner, the
partnership

A. revalues assets and liabilities and records goodwill to the continuing

partner but not to the withdrawing partner.

B. revalues liabilities but not assets, and no goodwill is recorded.

C. can recognize goodwill but does not revalue assets and liabilities.

D. revalues assets but not liabilities, and records goodwill to the continuing
partner but not to the withdrawing partner.

E. revalues assets and liabilities but does not record goodwill.

3. The disadvantages of the partnership form of business organization,

compared to corporations, include

A. the legal requirements for formation.

B. unlimited liability for the partners.

C. the requirement for the partnership to pay income taxes.

D. the extent of governmental regulation.

E. the complexity of operations.

4. The advantages of the partnership form of business organization, compared
to corporations, include

A. single taxation.

B. ease of raising capital.

C. mutual agency.

D. limited liability.

E. difficulty of formation.

5. The dissolution of a partnership occurs

A. only when the partnership sells its assets and permanently closes its
books.

B. only when a partner leaves the partnership.

C. at the end of each year, when income is allocated to the partners.

D. only when a new partner is admitted to the partnership.

E. when there is any change in the individuals who make up the partnership.
6. The partnership of Clapton, Seidel, and Thomas was insolvent and will be
unable to pay $30,000 in liabilities currently due. What recourse was available
to the partnership's creditors?

A. they must present equal claims to the three partners as individuals.

B. they must try obtain a payment from the partner with the largest capital
account balance.

C. they cannot seek remuneration from the partners as individuals.

D. they may seek remuneration from any partner they choose.

E. they must present their claims to the three partners in the order of the
partners' capital account balances.
7. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was Wasser's total share of net income for 2010?

A. $63,000.

B. $53,000.

C. $58,000.

D. $29,000.

E. $51,000.
8. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was Nolan's total share of net income for 2010?

A. $63,000.

B. $53,000.

C. $58,000.

D. $29,000.

E. $51,000.
9. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was Cleary's total share of net income for 2010?

A. $63,000.

B. $53,000.

C. $58,000.

D. $29,000.

E. $51,000.
10. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was Nolan's capital balance at the end of 2010?

A. $200,000.

B. $224,000.

C. $238,000.

D. $246,000.

E. $254,000.
11. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was Wasser's capital balance at the end of 2010?

A. $150,000.

B. $160,000.

C. $165,000.

D. $213,000.

E. $201,000.
12. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was Cleary's capital balance at the end of 2010?

A. $100,000.

B. $117,000.

C. $119,000.

D. $129,000.

E. $153,000.
13. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was the total capital balance for the partnership at December 31,
2010?

A. $600,000

B. $564,000

C. $535,000

D. $523,000

E. $545,000
14. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was the amount of interest attributed to Wasser for 2011?

A. $17,600

B. $18,800

C. $20,100

D. $17,800

E. $30,100
15. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was Wasser's total share of net income for 2011?

A. $34,420.

B. $75,540.

C. $65,540.

D. $70,040.

E. $61,420.
16. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was the remainder portion of net income allocated to Nolan for 2011?

A. $45,440

B. $58,040

C. $70,040

D. $72,000

E. $82,040
17. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was Nolan's total share of net income for 2011?

A. $34,420.

B. $75,540.

C. $65,540.

D. $70,040.

E. $61,420.
18. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was Cleary's total share of net income for 2011?

A. $34,420.

B. $75,540.

C. $65,540.

D. $70,040.

E. $61,420.
19. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was Nolan's capital balance at the end of 2011?

A. $139,420.

B. $246,000.

C. $276,540.

D. $279,440.

E. $304,040.
20. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was Wasser's capital balance at the end of 2011?

A. $201,000.

B. $263,520.

C. $264,540.

D. $304,040.

E. $313,780.
21. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was Cleary's capital account balance at the end of 2011?

A. $163,420.

B. $151,420.

C. $139,420.

D. $100,000.

E. $142,000.
22. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was the total capital balance for the partnership at December 31,
2011??

A. $852,000

B. $780,000

C. $708,000

D. $744,000

E. $594,000
23. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division of
income, they agreed to (1) interest of 10% of the beginning capital balance
each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the
remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for
Wasser and Nolan. Net income was $150,000 in 2010 and $180,000 in 2011.
Each partner withdrew $1,000 for personal use every month during 2010 and
2011.

What was the amount of interest attributed to Cleary for 2012?

A. $15,142

B. $13,942

C. $12,942

D. $14,142

E. $10,000
24. Jell and Dell were partners with capital balances of $600 and $800 and an
income sharing ratio of 2:3. They admitted Zell to a 30% interest in the
partnership, and the total amount of goodwill credited to the original partners
was $700. What amount did Zell contribute to the business?

A. $900.

B. $560.

C. $600.

D. $590.

E. $630.
25. Jerry, a partner in the JSK partnership, begins the year on January 1, 2011
with a capital balance of $20,000. The JSK partnership agreement states that
Jerry receives 6% interest on this weighted average capital balance.

• On March 1, 2011, when the partnership tax return for 2010 was completed,
Jerry's capital account was credited for his share of 2010 profit of $120,000.
• Jerry withdrew this amount quarterly, beginning April 1.
• On September 1, Jerry's capital account was credited with a special bonus
of $60,000 for business he brought to the partnership.

What amount of interest will be attributed to Jerry for year 2011 that will go
toward his profit distribution for the year? (Use a 360-day year for
calculations.)

A. $5,250

B. $6,000

C. $6,400

D. $7,000

E. $7,200
26. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net
income of $52,000 in the second year.

What was Young's total share of net loss for the first year?

A. $3,900 loss.

B. $11,700 loss.

C. $10,400 loss.

D. $24,700 loss.

E. $9,100 loss.
27. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net
income of $52,000 in the second year.

What was Eaton's total share of net loss for the first year?

A. $3,900 loss.

B. $11,700 loss.

C. $10,400 loss.

D. $24,700 loss.

E. $9,100 loss.
28. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net
income of $52,000 in the second year.

What was Thurman's total share of net loss for the first year?

A. $3,900 loss.

B. $11,700 loss.

C. $10,400 loss.

D. $24,700 loss.

E. $9,100 loss.
29. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net
income of $52,000 in the second year.

What was the balance in Young's Capital account at the end of the first year?

A. $120,900.

B. $118,300.

C. $126,100.

D. $80,600.

E. $111,500.
30. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net
income of $52,000 in the second year.

What was the balance in Eaton's Capital account at the end of the first year?

A. $120,900.

B. $118,300.

C. $126,100.

D. $80,600.

E. $111,500.
31. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net
income of $52,000 in the second year.

What was the balance in Thurman's Capital account at the end of the first
year?

A. $120,900.

B. $118,300.

C. $126,100.

D. $80,600.

E. $111,500.
32. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net
income of $52,000 in the second year.

What was Young's total share of net income for the second year?

A. $17,160 income.

B. $4,160 income.

C. $19,760 income.

D. $17,290 income.

E. $28,080 income.
33. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net
income of $52,000 in the second year.

What was Eaton's total share of net income for the second year?

A. $17,160 income.

B. $4,160 income.

C. $19,760 income.

D. $17,290 income.

E. $28,080 income.
34. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net
income of $52,000 in the second year.

What was Thurman's total share of net income for the second year?

A. $17,160 income.

B. $4,160 income.

C. $19,760 income.

D. $17,290 income.

E. $28,080 income.
35. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net
income of $52,000 in the second year.

What was the balance in Young's Capital account at the end of the second
year?

A. $133,380.

B. $84,760.

C. $105,690.

D. $132,860.

E. $71,760.
36. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net
income of $52,000 in the second year.

What was the balance in Eaton's Capital account at the end of the second
year?

A. $133,380.

B. $84,760.

C. $105,690.

D. $132,860.

E. $71,760.
37. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with net
income of $52,000 in the second year.

What was the balance in Thurman's Capital account at the end of the second
year?

A. $133,380.

B. $84,760.

C. $105,690.

D. $132,860.

E. $71,760.
38. Which of the following is not a characteristic of a partnership?

A. The partnership itself pays no income taxes.

B. It is easy to form a partnership.

C. Any partner can be held personally liable for all debts of the business.

D. A partnership requires written Articles of Partnership.

E. Each partner has the power to obligate the partnership for liabilities.

39. Partnerships have alternative legal forms including all of the following
except:

A. General Partnership.

B. Limited Partnership.

C. Subchapter S Partnership.

D. Limited Liability Partnership.

E. Limited Liability Company.

40. Which of the following type of organization is classified as a partnership, or
similar to a partnership, for tax purposes?

(I.) Limited Liability Company

(II.) Limited Liability Partnership
(III.) Subchapter S Corporation

A. II only.

B. II and III.

C. I and II.

D. I and III.

E. I, II, and III.

41. Which of the following statements is correct regarding the admission of a new
partner?

A. A new partner must purchase a partnership interest directly from the

business.

B. The right of co-ownership in the business property can be transferred to a

new partner without the consent of other existing partners.

C. The right to participate in management of the business can be conveyed

without the consent of other existing partners.

D. The right to share in profits and losses can be sold to a new partner
without the consent of other existing partners.

E. A new partner always pays book value.

42. Withdrawals from the partnership capital accounts are typically not used

A. to reward partners for work performed in the business.

B. to reduce the partners' capital account balances at the end of an

accounting period.

C. to record interest earned on a partner's capital balance.

D. to reduce the basic investment that has been made in the business.

E. to record the partnership's payment of a partner's personal expense such

as income tax.

43. The partnership contract for Hanes and Jones LLP provides that Hanes is to
receive a bonus of 20% of net income (after the bonus) and that the
remaining net income is to be divided equally. If the partnership income
before the bonus for the year is $57,600, Hanes' share of this pre-bonus
income is:

A. $28,800.

B. $33,600.

C. $34,560.

D. $35,520.

E. $38,400.
44. The partners of Apple, Bere, and Carroll LLP share net income and losses in a
5:3:2 ratio, respectively. The capital account balances on January 1, 2011,
were as follows:

The carrying amounts of the assets and liabilities of the partnership are the
same as their current fair values. Dorr will be admitted to the partnership with
a 20% capital interest and a 20% share of net income and losses in exchange
for a cash investment. The amount of cash that Dorr should invest in the
partnership is:

A. $25,000.

B. $30,000.

C. $37,500.

D. $75,000.

E. $90,000.
45. The appropriate format of the December 31, 2010 closing entry for John &
Hope Limited Liability Partnership, whose two partners had withdrawn their
salaries from the partnership during the year is:

A. Option A

B. Option B

C. Option C

D. Option D
46. When Danny withdrew from John, Daniel, Harry, and Danny, LLP, he was paid
$80,000, although his capital account balance was only $60,000. The four
partners shared net income and losses equally. The journal entry to record
the effect on John's capital due to Danny's withdrawal would include:

A. $6,667 debit to John, Capital.

B. $6,667 credit to John, Capital.

C. $20,000 debit to John, Capital.

D. $5,000 debit to John, Capital.

E. $5,000 credit to John, Capital.

47. Max, Jones and Waters shared profits and losses 20%, 40%, and 40%
respectively and their partnership capital balance is $10,000, $30,000 and
$50,000 respectively. Max has decided to withdraw from the partnership. An
appraisal of the business and its property estimates the fair value to be
$200,000. Land with a book value of $30,000 has a fair value of $45,000. Max
has agreed to receive $20,000 in exchange for her partnership interest after
revaluation. At what amount should land be recorded on the partnership
books?

A. $20,000.

B. $30,000.

C. $45,000.

D. $50,000.

E. $200,000.
48. The capital account balances for Donald & Hanes LLP on January 1, 2011,
were as follows:

Donald and Hanes shared net income and losses in the ratio of 3:2,
respectively. The partners agreed to admit May to the partnership with a 35%
interest in partnership capital and net income. May invested $100,000 cash,
and no goodwill was recognized.

What is the balance of May's capital account after the new partnership is
created?

A. $84,000.

B. $100,000.

C. $140,000.

D. $176,000.

E. $200,000.
49. The capital account balances for Donald & Hanes LLP on January 1, 2011,
were as follows:

Donald and Hanes shared net income and losses in the ratio of 3:2,
respectively. The partners agreed to admit May to the partnership with a 35%
interest in partnership capital and net income. May invested $100,000 cash,
and no goodwill was recognized.

What is the balance of Donald's capital account after the new partnership is
created?

A. $84,000.

B. $100,000.

C. $140,000.

D. $176,000.

E. $200,000.
50. The capital account balances for Donald & Hanes LLP on January 1, 2011,
were as follows:

Donald and Hanes shared net income and losses in the ratio of 3:2,
respectively. The partners agreed to admit May to the partnership with a 35%
interest in partnership capital and net income. May invested $100,000 cash,
and no goodwill was recognized.

What is the balance of Hanes's capital account after the new partnership is
created?

A. $84,000.

B. $100,000.

C. $140,000.

D. $176,000.

E. $200,000.
51. The capital account balances for Donald & Hanes LLP on January 1, 2011,
were as follows:

Donald and Hanes shared net income and losses in the ratio of 3:2,
respectively. The partners agreed to admit May to the partnership with a 35%
interest in partnership capital and net income. May invested $100,000 cash,
and no goodwill was recognized.

What is the new total balance of the partnership accounts?

A. $84,000.

B. $140,000.

C. $176,000.

D. $200,000.

E. $400,000.
52. Which of the following could be used as a basis to allocate profits among
partners who are active in the management of the partnership?

1) allocation of salaries.
2) the number of years with the partnership.
3) the amount of time each partner works.
4) the average capital invested.

A. 1 and 2.

B. 1 and 3.

C. 1, 2, and 4.

D. 1, 3, and 4.

E. 1, 2, 3, and 4.

53. P, L, and O are partners with capital balances of $50,000, $30,000 and
$20,000 and who share in the profit and loss of the PLO partnership 30%,
20%, and 50%, respectively, when they agree to admit C for a 20% interest.

If C is to contribute an amount equal to his book value share of the new

partnership, how much should C contribute?

A. $22,000

B. $20,000

C. $25,000

D. $18,000

E. $10,000
54. P, L, and O are partners with capital balances of $50,000, $30,000 and
$20,000 and who share in the profit and loss of the PLO partnership 30%,
20%, and 50%, respectively, when they agree to admit C for a 20% interest.

C contributes $38,000 to the partnership and the bonus method is used. What
amount will be credited for C's beginning capital balance?

A. $20,000

B. $25,000

C. $27,600

D. $32,600

E. $38,000

55. P, L, and O are partners with capital balances of $50,000, $30,000 and
$20,000 and who share in the profit and loss of the PLO partnership 30%,
20%, and 50%, respectively, when they agree to admit C for a 20% interest.

If C contributes $40,000 to the partnership and the goodwill method is used,

what amount will be debited for goodwill?

A. $15,000

B. $20,000

C. $25,000

D. $28,000

E. $60,000
56. P, L, and O are partners with capital balances of $50,000, $30,000 and
$20,000 and who share in the profit and loss of the PLO partnership 30%,
20%, and 50%, respectively, when they agree to admit C for a 20% interest.

C contributes $10,000 to the partnership and the goodwill method is used.

What will be the result of the goodwill calculation?

A. Goodwill of $15,000; split among the original partners.

B. Goodwill of $15,000; all to C.

C. Goodwill of $15,000; split among all four partners: P, L, O, and C.

D. Goodwill of $12,000; all to C.

E. Goodwill of $12,000; split among original partners.

57. Peter, Roberts, and Dana have the following capital balances; $80,000,
$100,000 and $60,000, respectively. The partners share profits and losses
20%, 40%, and 40% respectively.

Roberts retires and is paid $160,000 based on an independent appraisal of

the business. If the goodwill method is used, what is the capital balance of
Peter?

A. $20,000.

B. $60,000.

C. $110,000.

D. $120,000.

E. $230,000.
58. Peter, Roberts, and Dana have the following capital balances; $80,000,
$100,000 and $60,000, respectively. The partners share profits and losses
20%, 40%, and 40% respectively.

Roberts retires and is paid $160,000 based on an independent appraisal of

the business. If the goodwill method is used, what is the capital balance of
Dana?

A. $20,000.

B. $60,000.

C. $110,000.

D. $120,000.

E. $230,000.

59. Peter, Roberts, and Dana have the following capital balances; $80,000,
$100,000 and $60,000, respectively. The partners share profits and losses
20%, 40%, and 40% respectively.

What is the total partnership capital after Roberts retires receiving $160,000
and using the goodwill method?

A. $290,000.

B. $176,000.

C. $80,000.

D. $120,000.

E. $230,000.
60. Donald, Anne, and Todd have the following capital balances; $40,000, $50,000
and $30,000 respectively. The partners share profits and losses 20%, 40%,
and 40% respectively.

Anne retires and is paid $80,000 based on an independent appraisal of the

business. If the goodwill method is used, what is the capital of the remaining
partners?

A. Donald, $55,000; Todd, $60,000

B. Donald, $40,000; Todd, $30,000

C. Donald, $65,000; Todd, $55,000

D. Donald, $15,000; Todd, $30,000

61. Donald, Anne, and Todd have the following capital balances; $40,000, $50,000
and $30,000 respectively. The partners share profits and losses 20%, 40%,
and 40% respectively.

Anne retires and is paid $80,000 based on the terms of the original
partnership agreement. If the bonus method is used, what is the capital of the
remaining partners?

A. Donald, $40,000; Todd, $30,000

B. Donald, $30,000; Todd, $10,000

C. Donald, $50,000; Todd, $50,000

D. Donald, $24,000; Todd, $18,000

62. Donald, Anne, and Todd have the following capital balances; $40,000, $50,000
and $30,000 respectively. The partners share profits and losses 20%, 40%,
and 40% respectively.

What is the total partnership capital after Anne retires receiving $80,000 and
using the bonus method?

A. $70,000.

B. $40,000.

C. $60,000.

D. $80,000.

E. $42,000.

Essay Questions

63. What is the dissolution of a partnership?

64. By what methods can a person gain admittance to a partnership?

65. What events cause the dissolution of a partnership?

66. For what events or conditions should the Articles of Partnership make
provision?
67. How is accounting for a partnership different from accounting for a
corporation?

68. Why are the terms of the Articles of Partnership important to partners?
69. Brown and Green are forming a business as partners. If they do not create a
formal written partnership agreement, what risks are they exposing
themselves to?

70. What theoretical argument could be made against the recognition of goodwill
when there is a change in the ownership of a partnership?
71. Under what circumstances does a partner's balance in his or her capital
account have practical consequences for the partner?

Short Answer Questions

72. Reed, Sharp, and Tucker were partners with capital account balances of
$80,000, $100,000, and $70,000, respectively. They agreed to admit Upton to
the partnership. Upton purchased 30% of each partner's interest, with
payments directly to Reed, Sharp, and Tucker of $32,000, $40,000, and
$28,000, respectively. Before the admission of Upton, the profit and loss
sharing ratio was 2:3:2. The partners agreed to use the bonus method to
account for the admission of Upton to the partnership.

Required:

Prepare the journal entry to record the admission of Upton to the

partnership.
73. Jipsom and Klark were partners with capital account balances of $80,000 and
$100,000, respectively. Looney directly paid $32,000 to Jipsom and $40,000 to
Klark for 30% of their interests in the partnership. Jipsom and Klark shared
income in the ratio of 2:3. They believed that revaluation of the partnership
was appropriate when a new partner was admitted.

Required:

Prepare the journal entries to record the admission of Looney to the

partnership.
74. Norr and Caylor established a partnership on January 1, 2010. Norr invested
cash of $100,000 and Caylor invested $30,000 in cash and equipment with a
book value of $40,000 and fair value of $50,000. For both partners, the
beginning capital balance was to equal the initial investment. Norr and Caylor
agreed to the following procedure for sharing profits and losses:

- 12% interest on the yearly beginning capital balance

- $10 per hour of work that can be billed to the partnership's clients
- the remainder divided in a 3:2 ratio

The Articles of Partnership specified that each partner should withdraw no

more than $1,000 per month.
For 2010, the partnership's income was $70,000. Norr had 1,000 billable
hours, and Caylor worked 1,400 billable hours. In 2011, the partnership's
income was $24,000, and Norr and Caylor worked 800 and 1,200 billable
hours respectively. Each partner withdrew $1,000 per month throughout 2010
and 2011.

Determine the amount of net income allocated to each partner for 2010.
75. Norr and Caylor established a partnership on January 1, 2010. Norr invested
cash of $100,000 and Caylor invested $30,000 in cash and equipment with a
book value of $40,000 and fair value of $50,000. For both partners, the
beginning capital balance was to equal the initial investment. Norr and Caylor
agreed to the following procedure for sharing profits and losses:

- 12% interest on the yearly beginning capital balance

- $10 per hour of work that can be billed to the partnership's clients
- the remainder divided in a 3:2 ratio

The Articles of Partnership specified that each partner should withdraw no

more than $1,000 per month.
For 2010, the partnership's income was $70,000. Norr had 1,000 billable
hours, and Caylor worked 1,400 billable hours. In 2011, the partnership's
income was $24,000, and Norr and Caylor worked 800 and 1,200 billable
hours respectively. Each partner withdrew $1,000 per month throughout 2010
and 2011.

Determine the balance in both capital accounts at the end of 2010.

76. Norr and Caylor established a partnership on January 1, 2010. Norr invested
cash of $100,000 and Caylor invested $30,000 in cash and equipment with a
book value of $40,000 and fair value of $50,000. For both partners, the
beginning capital balance was to equal the initial investment. Norr and Caylor
agreed to the following procedure for sharing profits and losses:

- 12% interest on the yearly beginning capital balance

- $10 per hour of work that can be billed to the partnership's clients
- the remainder divided in a 3:2 ratio

The Articles of Partnership specified that each partner should withdraw no

more than $1,000 per month.
For 2010, the partnership's income was $70,000. Norr had 1,000 billable
hours, and Caylor worked 1,400 billable hours. In 2011, the partnership's
income was $24,000, and Norr and Caylor worked 800 and 1,200 billable
hours respectively. Each partner withdrew $1,000 per month throughout 2010
and 2011.

Determine the amount of net income allocated to each partner for 2011.
(Round all calculations to the nearest whole dollar).
77. Determine the balance in both capital accounts at the end of 2011 to the
nearest dollar.
78. The ABCD Partnership has the following balance sheet at January 1, 2010,
prior to the admission of new partner, Eden.

Eden contributes $49,000 into the partnership for a 25% interest. The four
original partners share profits and losses equally. Using the bonus method,
determine the balances for each of the five partners after Eden joins the
partnership.
79. The ABCD Partnership has the following balance sheet at January 1, 2010,
prior to the admission of new partner, Eden.

Eden contributed $124,000 in cash to the business to receive a 20% interest

in the partnership. Goodwill was to be recorded. The four original partners
shared all profits and losses equally. After Eden made his investment, what
were the individual capital balances?
80. The ABCD Partnership has the following balance sheet at January 1, 2010,
prior to the admission of new partner, Eden.

Eden acquired a 20% interest in the partnership by contributing a total of

$71,500 directly to the other four partners. No goodwill is to be recorded.
Profits and losses have previously been split according to the following
percentages: Adams, 15%, Barnes, 35%, Cordas, 30%, and Davis, 20%. After
Eden made his investment, what were the individual capital balances?
81. The ABCD Partnership has the following balance sheet at January 1, 2010,
prior to the admission of new partner, Eden.

Eden acquired a 20% interest in the partnership by contributing a total of

$71,500 directly to the other four partners. Goodwill is to be recorded. Profits
and losses have previously been split according to the following percentages:
Adams, 15%; Barnes, 35%; Cordas, 30%; and Davis, 20%. After Eden made his
investment, what were the individual capital balances?
82. Assume the partnership of Dean, Hardin, and Roth has been in existence for a
number of years. Dean decides to withdraw from the partnership when the
partners' capital balances are as follows:

An appraisal of the business and its property estimates the fair value to be
$100,000. Dean has agreed to receive $64,000 in exchange for his partnership
interest.

Prepare the journal entry for the payment to Dean in the dissolution of his
partnership interest, assuming the bonus method is to be applied.
83. Assume the partnership of Dean, Hardin, and Roth has been in existence for a
number of years. Dean decides to withdraw from the partnership when the
partners' capital balances are as follows:

An appraisal of the business and its property estimates the fair value to be
$100,000. Dean has agreed to receive $64,000 in exchange for his partnership
interest.

What are the remaining partners' capital balances after Dean's interest is
dissolved, assuming the bonus method is applied?
84. Assume the partnership of Howell, Madrid, and Waldrop has been in
existence for a number of years. Howell decides to withdraw from the
partnership when the partners' capital balances are as follows:

An appraisal of the business and its net assets estimates the fair value to be
$154,000. Land with a book value of $20,000 has a fair value of $35,000.
Howell has agreed to receive $84,000 in exchange for her partnership
interest.

Prepare the journal entries for the dissolution of Howell's partnership

interest, assuming the goodwill method is to be applied.
85. Assume the partnership of Howell, Madrid, and Waldrop has been in
existence for a number of years. Howell decides to withdraw from the
partnership when the partners' capital balances are as follows:

An appraisal of the business and its net assets estimates the fair value to be
$154,000. Land with a book value of $20,000 has a fair value of $35,000.
Howell has agreed to receive $84,000 in exchange for her partnership
interest.

What are the remaining partners' capital balances after Howell's interest is
dissolved, assuming the goodwill method is applied?
86. On January 1, 2011, Lamb and Mona LLP admitted Noris to a 20% interest in
net assets for an investment of $50,000 cash. Prior to the admission of Noris,
Lamb and Mona had net assets of $100,000 and an income-sharing ratio of
25% to Lamb and 75% to Mona. After the admission of Noris, the partnership
contract included the following provisions:

• Salary of $40,000 a year to Noris.

• Remaining net income in ratio Lamb 20%, Mona 60%, Noris 20%
• During the fiscal year ended December 31, 2011, the partnership had
income of $90,000 prior to recognition of salary to Noris.

Record the journal entry for the admission of Noris. Goodwill is not to be
recorded.
87. On January 1, 2011, Lamb and Mona LLP admitted Noris to a 20% interest in
net assets for an investment of $50,000 cash. Prior to the admission of Noris,
Lamb and Mona had net assets of $100,000 and an income-sharing ratio of
25% to Lamb and 75% to Mona. After the admission of Noris, the partnership
contract included the following provisions:

• Salary of $40,000 a year to Noris.

• Remaining net income in ratio Lamb 20%, Mona 60%, Noris 20%
• During the fiscal year ended December 31, 2011, the partnership had
income of $90,000 prior to recognition of salary to Noris.

Record the journal entry to allocate the salary of Noris.

88. On January 1, 2011, Lamb and Mona LLP admitted Noris to a 20% interest in
net assets for an investment of $50,000 cash. Prior to the admission of Noris,
Lamb and Mona had net assets of $100,000 and an income-sharing ratio of
25% to Lamb and 75% to Mona. After the admission of Noris, the partnership
contract included the following provisions:

• Salary of $40,000 a year to Noris.

• Remaining net income in ratio Lamb 20%, Mona 60%, Noris 20%
• During the fiscal year ended December 31, 2011, the partnership had
income of $90,000 prior to recognition of salary to Noris.

Record the journal entry to record the remainder of net income to the capital
accounts.
89. James, Keller, and Rivers have the following capital balances; $48,000,
$70,000 and $90,000 respectively. Because of a cash shortage James invests
an additional $12,000 on June 1st. Each partner withdraws $1,000 per month.
James, Keller, and Rivers receive a salary of $13,000, $15,000 and $20,000,
respectively, for work done during the year. Each partner receives interest of
8% on their weighted average capital balance without regard to normal
drawings. Any remaining profits are split 20%, 30%, and 50% respectively. The
net income for the year is $30,000. What are the ending capital balances for
each partner?
 Chapter 14 Partnerships: Formation and Operation Answer Key

Multiple Choice Questions

1. Cherryhill and Hace had been partners for several years, and they decided
to admit Quincy to the partnership. The accountant for the partnership
believed that the dissolved partnership and the newly formed partnership
were two separate entities. What method would the accountant have used
for recording the admission of Quincy to the partnership?

A. the bonus method.

B. the equity method.

C. the goodwill method.

D. the proportionate method.

E. the cost method.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 14-08 Prepare journal entries to record the acquisition by a new partner of either all or a portion of a
current partner's interest.
2. When the hybrid method is used to record the withdrawal of a partner, the
partnership

A. revalues assets and liabilities and records goodwill to the continuing

partner but not to the withdrawing partner.

B. revalues liabilities but not assets, and no goodwill is recorded.

C. can recognize goodwill but does not revalue assets and liabilities.

D. revalues assets but not liabilities, and records goodwill to the continuing
partner but not to the withdrawing partner.

E. revalues assets and liabilities but does not record goodwill.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.

3. The disadvantages of the partnership form of business organization,

compared to corporations, include

A. the legal requirements for formation.

B. unlimited liability for the partners.

C. the requirement for the partnership to pay income taxes.

D. the extent of governmental regulation.

E. the complexity of operations.

AACSB: Reflective thinking

AICPA BB: Legal
 AICPA FN: Measurement
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 14-01 Discuss the advantages and disadvantages of the partnership versus the corporate form of
business.

4. The advantages of the partnership form of business organization,

compared to corporations, include

A. single taxation.

B. ease of raising capital.

C. mutual agency.

D. limited liability.

E. difficulty of formation.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 14-01 Discuss the advantages and disadvantages of the partnership versus the corporate form of
business.
5. The dissolution of a partnership occurs

A. only when the partnership sells its assets and permanently closes its
books.

B. only when a partner leaves the partnership.

C. at the end of each year, when income is allocated to the partners.

D. only when a new partner is admitted to the partnership.

E. when there is any change in the individuals who make up the

partnership.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-07 Discuss the meaning of partnership dissolution and understand that a dissolution will often
have little or no effect on the operations of the partnership business.
6. The partnership of Clapton, Seidel, and Thomas was insolvent and will be
unable to pay $30,000 in liabilities currently due. What recourse was
available to the partnership's creditors?

A. they must present equal claims to the three partners as individuals.

B. they must try obtain a payment from the partner with the largest capital
account balance.

C. they cannot seek remuneration from the partners as individuals.

D. they may seek remuneration from any partner they choose.

E. they must present their claims to the three partners in the order of the
partners' capital account balances.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 14-01 Discuss the advantages and disadvantages of the partnership versus the corporate form of
business.
7. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was Wasser's total share of net income for 2010?

A. $63,000.

B. $53,000.

C. $58,000.

D. $29,000.

E. $51,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
8. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was Nolan's total share of net income for 2010?

A. $63,000.

B. $53,000.

C. $58,000.

D. $29,000.

E. $51,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
9. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was Cleary's total share of net income for 2010?

A. $63,000.

B. $53,000.

C. $58,000.

D. $29,000.

E. $51,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
10. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was Nolan's capital balance at the end of 2010?

A. $200,000.

B. $224,000.

C. $238,000.

D. $246,000.

E. $254,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
11. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was Wasser's capital balance at the end of 2010?

A. $150,000.

B. $160,000.

C. $165,000.

D. $213,000.

E. $201,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
12. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was Cleary's capital balance at the end of 2010?

A. $100,000.

B. $117,000.

C. $119,000.

D. $129,000.

E. $153,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
13. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was the total capital balance for the partnership at December 31,
2010?

A. $600,000

B. $564,000

C. $535,000

D. $523,000

E. $545,000

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
14. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was the amount of interest attributed to Wasser for 2011?

A. $17,600

B. $18,800

C. $20,100

D. $17,800

E. $30,100

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
15. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was Wasser's total share of net income for 2011?

A. $34,420.

B. $75,540.

C. $65,540.

D. $70,040.

E. $61,420.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
16. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was the remainder portion of net income allocated to Nolan for
2011?

A. $45,440

B. $58,040

C. $70,040

D. $72,000

E. $82,040

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
17. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was Nolan's total share of net income for 2011?

A. $34,420.

B. $75,540.

C. $65,540.

D. $70,040.

E. $61,420.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
18. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was Cleary's total share of net income for 2011?

A. $34,420.

B. $75,540.

C. $65,540.

D. $70,040.

E. $61,420.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
19. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was Nolan's capital balance at the end of 2011?

A. $139,420.

B. $246,000.

C. $276,540.

D. $279,440.

E. $304,040.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
20. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was Wasser's capital balance at the end of 2011?

A. $201,000.

B. $263,520.

C. $264,540.

D. $304,040.

E. $313,780.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
21. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was Cleary's capital account balance at the end of 2011?

A. $163,420.

B. $151,420.

C. $139,420.

D. $100,000.

E. $142,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
22. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was the total capital balance for the partnership at December 31,
2011??

A. $852,000

B. $780,000

C. $708,000

D. $744,000

E. $594,000

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
23. Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, with
investments of $100,000, $150,000, and $200,000, respectively. For division
of income, they agreed to (1) interest of 10% of the beginning capital
balance each year, (2) annual compensation of $10,000 to Wasser, and (3)
sharing the remainder of the income or loss in a ratio of 20% for Cleary, and
40% each for Wasser and Nolan. Net income was $150,000 in 2010 and
$180,000 in 2011. Each partner withdrew $1,000 for personal use every
month during 2010 and 2011.

What was the amount of interest attributed to Cleary for 2012?

A. $15,142

B. $13,942

C. $12,942

D. $14,142

E. $10,000

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
24. Jell and Dell were partners with capital balances of $600 and $800 and an
income sharing ratio of 2:3. They admitted Zell to a 30% interest in the
partnership, and the total amount of goodwill credited to the original
partners was $700. What amount did Zell contribute to the business?

A. $900.

B. $560.

C. $600.

D. $590.

E. $630.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to
the partnership.
25. Jerry, a partner in the JSK partnership, begins the year on January 1, 2011
with a capital balance of $20,000. The JSK partnership agreement states
that Jerry receives 6% interest on this weighted average capital balance.

• On March 1, 2011, when the partnership tax return for 2010 was
completed, Jerry's capital account was credited for his share of 2010 profit
of $120,000.
• Jerry withdrew this amount quarterly, beginning April 1.
• On September 1, Jerry's capital account was credited with a special bonus
of $60,000 for business he brought to the partnership.

What amount of interest will be attributed to Jerry for year 2011 that will go
toward his profit distribution for the year? (Use a 360-day year for
calculations.)

A. $5,250

B. $6,000

C. $6,400

D. $7,000

E. $7,200

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
26. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with
net income of $52,000 in the second year.

What was Young's total share of net loss for the first year?

A. $3,900 loss.

B. $11,700 loss.

C. $10,400 loss.

D. $24,700 loss.

E. $9,100 loss.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
 Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
27. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with
net income of $52,000 in the second year.

What was Eaton's total share of net loss for the first year?

A. $3,900 loss.

B. $11,700 loss.

C. $10,400 loss.

D. $24,700 loss.

E. $9,100 loss.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
 Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
28. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with
net income of $52,000 in the second year.

What was Thurman's total share of net loss for the first year?

A. $3,900 loss.

B. $11,700 loss.

C. $10,400 loss.

D. $24,700 loss.

E. $9,100 loss.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
 Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
29. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with
net income of $52,000 in the second year.

What was the balance in Young's Capital account at the end of the first
year?

A. $120,900.

B. $118,300.

C. $126,100.

D. $80,600.

E. $111,500.

AACSB: Analytic
 AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
30. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with
net income of $52,000 in the second year.

What was the balance in Eaton's Capital account at the end of the first
year?

A. $120,900.

B. $118,300.

C. $126,100.

D. $80,600.

E. $111,500.

AACSB: Analytic
 AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
31. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with
net income of $52,000 in the second year.

What was the balance in Thurman's Capital account at the end of the first
year?

A. $120,900.

B. $118,300.

C. $126,100.

D. $80,600.

E. $111,500.

AACSB: Analytic
 AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
32. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with
net income of $52,000 in the second year.

What was Young's total share of net income for the second year?

A. $17,160 income.

B. $4,160 income.

C. $19,760 income.

D. $17,290 income.

E. $28,080 income.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
 Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
33. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with
net income of $52,000 in the second year.

What was Eaton's total share of net income for the second year?

A. $17,160 income.

B. $4,160 income.

C. $19,760 income.

D. $17,290 income.

E. $28,080 income.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
 Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
34. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with
net income of $52,000 in the second year.

What was Thurman's total share of net income for the second year?

A. $17,160 income.

B. $4,160 income.

C. $19,760 income.

D. $17,290 income.

E. $28,080 income.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
 Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
35. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with
net income of $52,000 in the second year.

What was the balance in Young's Capital account at the end of the second
year?

A. $133,380.

B. $84,760.

C. $105,690.

D. $132,860.

E. $71,760.

AACSB: Analytic
 AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
36. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with
net income of $52,000 in the second year.

What was the balance in Eaton's Capital account at the end of the second
year?

A. $133,380.

B. $84,760.

C. $105,690.

D. $132,860.

E. $71,760.

AACSB: Analytic
 AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
37. A partnership began its first year of operations with the following capital
balances:

The Articles of Partnership stipulated that profits and losses be assigned in

the following manner:
Young was to be awarded an annual salary of $26,000 with $13,000 salary
assigned to Thurman.
Each partner was to be attributed with interest equal to 10% of the capital
balance as of the first day of the year.
The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and
Thurman, respectively.
Each partner withdrew $13,000 per year.
Assume that the net loss for the first year of operations was $26,000 with
net income of $52,000 in the second year.

What was the balance in Thurman's Capital account at the end of the
second year?

A. $133,380.

B. $84,760.

C. $105,690.

D. $132,860.

E. $71,760.

AACSB: Analytic
 AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.

38. Which of the following is not a characteristic of a partnership?

A. The partnership itself pays no income taxes.

B. It is easy to form a partnership.

C. Any partner can be held personally liable for all debts of the business.

D. A partnership requires written Articles of Partnership.

E. Each partner has the power to obligate the partnership for liabilities.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-01 Discuss the advantages and disadvantages of the partnership versus the corporate form of
business.
39. Partnerships have alternative legal forms including all of the following
except:

A. General Partnership.

B. Limited Partnership.

C. Subchapter S Partnership.

D. Limited Liability Partnership.

E. Limited Liability Company.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-01 Discuss the advantages and disadvantages of the partnership versus the corporate form of
business.
40. Which of the following type of organization is classified as a partnership, or
similar to a partnership, for tax purposes?

(I.) Limited Liability Company

(II.) Limited Liability Partnership
(III.) Subchapter S Corporation

A. II only.

B. II and III.

C. I and II.

D. I and III.

E. I, II, and III.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 14-01 Discuss the advantages and disadvantages of the partnership versus the corporate form of
business.
41. Which of the following statements is correct regarding the admission of a
new partner?

A. A new partner must purchase a partnership interest directly from the

business.

B. The right of co-ownership in the business property can be transferred to

a new partner without the consent of other existing partners.

C. The right to participate in management of the business can be conveyed

without the consent of other existing partners.

D. The right to share in profits and losses can be sold to a new partner
without the consent of other existing partners.

E. A new partner always pays book value.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-03 Prepare the journal entry to record the initial capital investment made by a partner.
42. Withdrawals from the partnership capital accounts are typically not used

A. to reward partners for work performed in the business.

B. to reduce the partners' capital account balances at the end of an

accounting period.

C. to record interest earned on a partner's capital balance.

D. to reduce the basic investment that has been made in the business.

E. to record the partnership's payment of a partner's personal expense

such as income tax.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-04 Use both the bonus method and the goodwill method to record a partner's capital investment.
43. The partnership contract for Hanes and Jones LLP provides that Hanes is
to receive a bonus of 20% of net income (after the bonus) and that the
remaining net income is to be divided equally. If the partnership income
before the bonus for the year is $57,600, Hanes' share of this pre-bonus
income is:

A. $28,800.

B. $33,600.

C. $34,560.

D. $35,520.

E. $38,400.

Bonus = .20 (NI - Bonus) = (.20 NI) - (.20 Bonus).

1.2 Bonus = $11,520. Bonus = $9,600. Remainder to share equally =
$48,000. Hanes receives $24,000 + $9,600 = $33,600

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
44. The partners of Apple, Bere, and Carroll LLP share net income and losses
in a 5:3:2 ratio, respectively. The capital account balances on January 1,
2011, were as follows:

The carrying amounts of the assets and liabilities of the partnership are the
same as their current fair values. Dorr will be admitted to the partnership
with a 20% capital interest and a 20% share of net income and losses in
exchange for a cash investment. The amount of cash that Dorr should
invest in the partnership is:

A. $25,000.

B. $30,000.

C. $37,500.

D. $75,000.

E. $90,000.

($150,000/.8=$187,500. $187,500 - $150,000 = $37,500 to invest)

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to
the partnership.
45. The appropriate format of the December 31, 2010 closing entry for John &
Hope Limited Liability Partnership, whose two partners had withdrawn
their salaries from the partnership during the year is:

A. Option A

B. Option B

C. Option C

D. Option D

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
46. When Danny withdrew from John, Daniel, Harry, and Danny, LLP, he was
paid $80,000, although his capital account balance was only $60,000. The
four partners shared net income and losses equally. The journal entry to
record the effect on John's capital due to Danny's withdrawal would
include:

A. $6,667 debit to John, Capital.

B. $6,667 credit to John, Capital.

C. $20,000 debit to John, Capital.

D. $5,000 debit to John, Capital.

E. $5,000 credit to John, Capital.

($80,000 - $60,000) ÷ 3 = $6,667

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
47. Max, Jones and Waters shared profits and losses 20%, 40%, and 40%
respectively and their partnership capital balance is $10,000, $30,000 and
$50,000 respectively. Max has decided to withdraw from the partnership.
An appraisal of the business and its property estimates the fair value to be
$200,000. Land with a book value of $30,000 has a fair value of $45,000.
Max has agreed to receive $20,000 in exchange for her partnership interest
after revaluation. At what amount should land be recorded on the
partnership books?

A. $20,000.

B. $30,000.

C. $45,000.

D. $50,000.

E. $200,000.

Land will be recorded at the fair value of $45,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
48. The capital account balances for Donald & Hanes LLP on January 1, 2011,
were as follows:

Donald and Hanes shared net income and losses in the ratio of 3:2,
respectively. The partners agreed to admit May to the partnership with a
35% interest in partnership capital and net income. May invested $100,000
cash, and no goodwill was recognized.

What is the balance of May's capital account after the new partnership is
created?

A. $84,000.

B. $100,000.

C. $140,000.

D. $176,000.

E. $200,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to
the partnership.
49. The capital account balances for Donald & Hanes LLP on January 1, 2011,
were as follows:

Donald and Hanes shared net income and losses in the ratio of 3:2,
respectively. The partners agreed to admit May to the partnership with a
35% interest in partnership capital and net income. May invested $100,000
cash, and no goodwill was recognized.

What is the balance of Donald's capital account after the new partnership
is created?

A. $84,000.

B. $100,000.

C. $140,000.

D. $176,000.

E. $200,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to
the partnership.
50. The capital account balances for Donald & Hanes LLP on January 1, 2011,
were as follows:

Donald and Hanes shared net income and losses in the ratio of 3:2,
respectively. The partners agreed to admit May to the partnership with a
35% interest in partnership capital and net income. May invested $100,000
cash, and no goodwill was recognized.

What is the balance of Hanes's capital account after the new partnership is
created?

A. $84,000.

B. $100,000.

C. $140,000.

D. $176,000.

E. $200,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to
the partnership.
51. The capital account balances for Donald & Hanes LLP on January 1, 2011,
were as follows:

Donald and Hanes shared net income and losses in the ratio of 3:2,
respectively. The partners agreed to admit May to the partnership with a
35% interest in partnership capital and net income. May invested $100,000
cash, and no goodwill was recognized.

What is the new total balance of the partnership accounts?

A. $84,000.

B. $140,000.

C. $176,000.

D. $200,000.

E. $400,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to
the partnership.
52. Which of the following could be used as a basis to allocate profits among
partners who are active in the management of the partnership?

1) allocation of salaries.
2) the number of years with the partnership.
3) the amount of time each partner works.
4) the average capital invested.

A. 1 and 2.

B. 1 and 3.

C. 1, 2, and 4.

D. 1, 3, and 4.

E. 1, 2, 3, and 4.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
53. P, L, and O are partners with capital balances of $50,000, $30,000 and
$20,000 and who share in the profit and loss of the PLO partnership 30%,
20%, and 50%, respectively, when they agree to admit C for a 20% interest.

If C is to contribute an amount equal to his book value share of the new

partnership, how much should C contribute?

A. $22,000

B. $20,000

C. $25,000

D. $18,000

E. $10,000

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to
the partnership.
54. P, L, and O are partners with capital balances of $50,000, $30,000 and
$20,000 and who share in the profit and loss of the PLO partnership 30%,
20%, and 50%, respectively, when they agree to admit C for a 20% interest.

C contributes $38,000 to the partnership and the bonus method is used.

What amount will be credited for C's beginning capital balance?

A. $20,000

B. $25,000

C. $27,600

D. $32,600

E. $38,000

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to
the partnership.
55. P, L, and O are partners with capital balances of $50,000, $30,000 and
$20,000 and who share in the profit and loss of the PLO partnership 30%,
20%, and 50%, respectively, when they agree to admit C for a 20% interest.

If C contributes $40,000 to the partnership and the goodwill method is

used, what amount will be debited for goodwill?

A. $15,000

B. $20,000

C. $25,000

D. $28,000

E. $60,000

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to
the partnership.
56. P, L, and O are partners with capital balances of $50,000, $30,000 and
$20,000 and who share in the profit and loss of the PLO partnership 30%,
20%, and 50%, respectively, when they agree to admit C for a 20% interest.

C contributes $10,000 to the partnership and the goodwill method is used.

What will be the result of the goodwill calculation?

A. Goodwill of $15,000; split among the original partners.

B. Goodwill of $15,000; all to C.

C. Goodwill of $15,000; split among all four partners: P, L, O, and C.

D. Goodwill of $12,000; all to C.

E. Goodwill of $12,000; split among original partners.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to
the partnership.
57. Peter, Roberts, and Dana have the following capital balances; $80,000,
$100,000 and $60,000, respectively. The partners share profits and losses
20%, 40%, and 40% respectively.

Roberts retires and is paid $160,000 based on an independent appraisal of

the business. If the goodwill method is used, what is the capital balance of
Peter?

A. $20,000.

B. $60,000.

C. $110,000.

D. $120,000.

E. $230,000.

Roberts receives an additional $60,000 above her capital balance. Since

she is assigned 40 percent of all profits and losses, this extra allocation
indicates total goodwill of $150,000, which must be split among all
partners.
40% of Goodwill = $60,000
.40 G = $60,000
G = $150,000 and Peter receives 20% = $30,000.
Peter's balance = $80,000 + $30,000 = $110,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
58. Peter, Roberts, and Dana have the following capital balances; $80,000,
$100,000 and $60,000, respectively. The partners share profits and losses
20%, 40%, and 40% respectively.

Roberts retires and is paid $160,000 based on an independent appraisal of

the business. If the goodwill method is used, what is the capital balance of
Dana?

A. $20,000.

B. $60,000.

C. $110,000.

D. $120,000.

E. $230,000.

Roberts receives an additional $60,000 above her capital balance. Since

she is assigned 40 percent of all profits and losses, this extra allocation
indicates total goodwill of $150,000, which must be split among all
partners.
40% of Goodwill = $60,000
.40 G = $60,000
G = $150,000 and Dana receives 40% = $60,000.
Dana's balance = $60,000 + $60,000 = $120,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
 Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.

59. Peter, Roberts, and Dana have the following capital balances; $80,000,
$100,000 and $60,000, respectively. The partners share profits and losses
20%, 40%, and 40% respectively.

What is the total partnership capital after Roberts retires receiving

$160,000 and using the goodwill method?

A. $290,000.

B. $176,000.

C. $80,000.

D. $120,000.

E. $230,000.

Roberts receives an additional $60,000 above her capital balance. Since

she is assigned 40 percent of all profits and losses, this extra allocation
indicates total goodwill of $150,000, which must be split among all
partners.
40% of Goodwill = $60,000
.40 G = $60,000
G = $150,000
Total capital is $240,000 + goodwill $150,000 = $390,000.
Roberts receives $160,000 and partnership capital is then $390,000-
$160,000 = $230,000.

AACSB: Analytic
AICPA BB: Legal
 AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.

60. Donald, Anne, and Todd have the following capital balances; $40,000,
$50,000 and $30,000 respectively. The partners share profits and losses
20%, 40%, and 40% respectively.

Anne retires and is paid $80,000 based on an independent appraisal of the

business. If the goodwill method is used, what is the capital of the
remaining partners?

A. Donald, $55,000; Todd, $60,000

B. Donald, $40,000; Todd, $30,000

C. Donald, $65,000; Todd, $55,000

D. Donald, $15,000; Todd, $30,000

Anne receives an additional $30,000 above her capital balance. Since she is
assigned 40 percent of all profits and losses, this extra allocation indicates
total goodwill of $75,000, which must be split among all partners.
40% of Goodwill = $30,000
.40 G = $30,000
G = $75,000
Donald = 20% Goodwill = $15,000. $40,000 + $15,000 = $55,000.
Todd = 40% Goodwill = $30,000. $30,000 + $30,000 = $60,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
 Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.

61. Donald, Anne, and Todd have the following capital balances; $40,000,
$50,000 and $30,000 respectively. The partners share profits and losses
20%, 40%, and 40% respectively.

Anne retires and is paid $80,000 based on the terms of the original
partnership agreement. If the bonus method is used, what is the capital of
the remaining partners?

A. Donald, $40,000; Todd, $30,000

B. Donald, $30,000; Todd, $10,000

C. Donald, $50,000; Todd, $50,000

D. Donald, $24,000; Todd, $18,000

The $30,000 bonus is deducted from the remaining partners according to

their relative profit and loss ratio. Donald = 20% and Todd = 40% which is a
1/3, 2/3 split.
Donald = $40,000 - (1/3 x $30,000) = $30,000.
Todd = $30,000 - (2/3 x $30,000) = $10,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
62. Donald, Anne, and Todd have the following capital balances; $40,000,
$50,000 and $30,000 respectively. The partners share profits and losses
20%, 40%, and 40% respectively.

What is the total partnership capital after Anne retires receiving $80,000
and using the bonus method?

A. $70,000.

B. $40,000.

C. $60,000.

D. $80,000.

E. $42,000.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.

Essay Questions
63. What is the dissolution of a partnership?

The dissolution of a partnership is the breakup of the partnership caused

by any change in the members that make up the partnership.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-07 Discuss the meaning of partnership dissolution and understand that a dissolution will often
have little or no effect on the operations of the partnership business.

64. By what methods can a person gain admittance to a partnership?

A person can gain admittance to a partnership by purchasing all or part of a

current partner's interest or by investing assets in the partnership.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-03 Prepare the journal entry to record the initial capital investment made by a partner.
65. What events cause the dissolution of a partnership?

The dissolution of a partnership occurs whenever there is a change in the

members that make up the partnership. Dissolution does not mean going
out of business, although, on occasion, dissolution would be accompanied
by liquidation of assets and termination of the business. Dissolution would
occur whenever a new partner is admitted to the partnership, dissolving
one partnership and forming a new one. Dissolution also occurs when a
partner leaves the partnership or when a partner dies or retires. The
Articles of Partnership may allow the partners to force dissolution under
some circumstances.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 14-07 Discuss the meaning of partnership dissolution and understand that a dissolution will often
have little or no effect on the operations of the partnership business.
66. For what events or conditions should the Articles of Partnership make
provision?

The Articles of Partnership should be a comprehensive document that is

fair to all the partners. It should contain the following provisions:

(A.) The amounts that will be invested in the partnership by the founding
partners.
(B.) The amounts of withdrawals that partners can make. Limiting the
amount of withdrawals causes the partners to maintain a reasonable
investment in the partnership.
(C.) The division of income or loss between the partners.
(D.) Guidelines for admission of new partners or withdrawal or retirement
of partners.
(E.) In some cases, guidelines for division of assets when the partnership
liquidates.
In addition, the Articles of Partnership should specify how much time each
partner will spend in the business; the responsibilities of each partner; and
procedures for resolution of disputes between partners.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Remember
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the purpose of the articles of partnership and list specific items that should be
included in this agreement.
67. How is accounting for a partnership different from accounting for a
corporation?

Financial accounting for a partnership differs from corporate accounting

only in accounting for owners' equity. A partnership does not sell capital
stock and does not have a retained earnings account. Each partner will
have a capital account and a drawing account. On the balance sheet, the
balance in each of the partner's capital accounts should be reported. The
accountant for a partnership must divide income or loss among partners,
following the provisions of the Articles of Partnership. Income tax
accounting differs between corporations and partnerships. A corporation is
a taxable entity and must file an income tax return. A partnership is not a
taxable entity but is required to file an informational return that reports the
various amounts of revenues and expenses attributed to each partner.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-01 Discuss the advantages and disadvantages of the partnership versus the corporate form of
business.
68. Why are the terms of the Articles of Partnership important to partners?

The Articles of Partnership contain terms that help to protect the interests
of each partner and the longevity and profitability of the business. One of
the most important terms in the Articles of Partnership is the provision for
division of income or loss. The amount of income or loss assigned to
partners affects the balances in their capital accounts and may affect the
amount of withdrawals the partners can make and the assets they receive
upon the liquidation of the partnership. The terms in the Articles of
Partnership help to prevent one partner from taking advantage of other
partners.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the purpose of the articles of partnership and list specific items that should be
included in this agreement.
69. Brown and Green are forming a business as partners. If they do not create
a formal written partnership agreement, what risks are they exposing
themselves to?

The Articles of Partnership should help every partner protect his or her
interests. Because of mutual agency and unlimited liability, being a partner
involves some risk. If a partnership becomes insolvent, any or all of the
partners may be required to use personal assets to settle partnership
liabilities. The Articles of Partnership can require each partner to maintain
his or her investment in the partnership and to meet other responsibilities,
such as working in the business. With a formal written agreement, each
partner would have recourse if another partner does not fulfill the terms in
the Articles of Partnership.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Risk Analysis
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-02 Describe the purpose of the articles of partnership and list specific items that should be
included in this agreement.
70. What theoretical argument could be made against the recognition of
goodwill when there is a change in the ownership of a partnership?

Goodwill should be recognized only when a business is purchased in an

arms-length transaction — a transaction between independent parties.
Generally, partners are not independent parties. Transactions between
partners or between a partner and the partnership may be influenced by
factors other than fair value and bargaining between independent parties.
For example, if one partner has been causing trouble for a partnership, the
other partners might agree to pay more than fair value to convince that
partner to leave the business. The amount of goodwill that could be
calculated for such a transaction would not be an indication of the fair
value of the business.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 14-04 Use both the bonus method and the goodwill method to record a partner's capital investment.
71. Under what circumstances does a partner's balance in his or her capital
account have practical consequences for the partner?

The most direct practical consequence of a partner's capital account

balance occurs when the partnership is liquidated. After assets are sold
and liabilities are paid, each partner receives the balance in his or her
capital account. The balance in the capital account may also influence the
division of income or loss each year and could affect the amount of cash
each partner is allowed to withdraw from the partnership.

AACSB: Reflective thinking

AICPA BB: Legal
AICPA FN: Measurement
Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 14-03 Prepare the journal entry to record the initial capital investment made by a partner.

Short Answer Questions

72. Reed, Sharp, and Tucker were partners with capital account balances of
$80,000, $100,000, and $70,000, respectively. They agreed to admit Upton
to the partnership. Upton purchased 30% of each partner's interest, with
payments directly to Reed, Sharp, and Tucker of $32,000, $40,000, and
$28,000, respectively. Before the admission of Upton, the profit and loss
sharing ratio was 2:3:2. The partners agreed to use the bonus method to
account for the admission of Upton to the partnership.

Required:

Prepare the journal entry to record the admission of Upton to the

partnership.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-08 Prepare journal entries to record the acquisition by a new partner of either all or a portion of a
current partner's interest.
73. Jipsom and Klark were partners with capital account balances of $80,000
and $100,000, respectively. Looney directly paid $32,000 to Jipsom and
$40,000 to Klark for 30% of their interests in the partnership. Jipsom and
Klark shared income in the ratio of 2:3. They believed that revaluation of
the partnership was appropriate when a new partner was admitted.

Required:

Prepare the journal entries to record the admission of Looney to the

partnership.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 14-08 Prepare journal entries to record the acquisition by a new partner of either all or a portion of a
current partner's interest.
74. Norr and Caylor established a partnership on January 1, 2010. Norr invested
cash of $100,000 and Caylor invested $30,000 in cash and equipment with
a book value of $40,000 and fair value of $50,000. For both partners, the
beginning capital balance was to equal the initial investment. Norr and
Caylor agreed to the following procedure for sharing profits and losses:

- 12% interest on the yearly beginning capital balance

- $10 per hour of work that can be billed to the partnership's clients
- the remainder divided in a 3:2 ratio

The Articles of Partnership specified that each partner should withdraw no

more than $1,000 per month.
For 2010, the partnership's income was $70,000. Norr had 1,000 billable
hours, and Caylor worked 1,400 billable hours. In 2011, the partnership's
income was $24,000, and Norr and Caylor worked 800 and 1,200 billable
hours respectively. Each partner withdrew $1,000 per month throughout
2010 and 2011.

Determine the amount of net income allocated to each partner for 2010.

Distribution of income for 2010:

 AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
75. Norr and Caylor established a partnership on January 1, 2010. Norr invested
cash of $100,000 and Caylor invested $30,000 in cash and equipment with
a book value of $40,000 and fair value of $50,000. For both partners, the
beginning capital balance was to equal the initial investment. Norr and
Caylor agreed to the following procedure for sharing profits and losses:

- 12% interest on the yearly beginning capital balance

- $10 per hour of work that can be billed to the partnership's clients
- the remainder divided in a 3:2 ratio

The Articles of Partnership specified that each partner should withdraw no

more than $1,000 per month.
For 2010, the partnership's income was $70,000. Norr had 1,000 billable
hours, and Caylor worked 1,400 billable hours. In 2011, the partnership's
income was $24,000, and Norr and Caylor worked 800 and 1,200 billable
hours respectively. Each partner withdrew $1,000 per month throughout
2010 and 2011.

Determine the balance in both capital accounts at the end of 2010.

Capital account balances at the end of 2010:

 AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
76. Norr and Caylor established a partnership on January 1, 2010. Norr invested
cash of $100,000 and Caylor invested $30,000 in cash and equipment with
a book value of $40,000 and fair value of $50,000. For both partners, the
beginning capital balance was to equal the initial investment. Norr and
Caylor agreed to the following procedure for sharing profits and losses:

- 12% interest on the yearly beginning capital balance

- $10 per hour of work that can be billed to the partnership's clients
- the remainder divided in a 3:2 ratio

The Articles of Partnership specified that each partner should withdraw no

more than $1,000 per month.
For 2010, the partnership's income was $70,000. Norr had 1,000 billable
hours, and Caylor worked 1,400 billable hours. In 2011, the partnership's
income was $24,000, and Norr and Caylor worked 800 and 1,200 billable
hours respectively. Each partner withdrew $1,000 per month throughout
2010 and 2011.

Determine the amount of net income allocated to each partner for 2011.
(Round all calculations to the nearest whole dollar).

Distribution of income for 2011:

 AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.

77. Determine the balance in both capital accounts at the end of 2011 to the
nearest dollar.

Capital account balances at the end of 2011:

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
78. The ABCD Partnership has the following balance sheet at January 1, 2010,
prior to the admission of new partner, Eden.

Eden contributes $49,000 into the partnership for a 25% interest. The four
original partners share profits and losses equally. Using the bonus method,
determine the balances for each of the five partners after Eden joins the
partnership.

Eden's contribution of $49,000 into the partnership raises the total

partnership net assets to $400,000. Eden's capital account is credited, by
agreement, for 25% of the partnership's total tangible assets, or $100,000.
The journal entry to record the admission of Eden is:

The capital balances of each of the five partners after Eden's entry into the
partnership are as follows:
 AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to
the partnership.
79. The ABCD Partnership has the following balance sheet at January 1, 2010,
prior to the admission of new partner, Eden.

Eden contributed $124,000 in cash to the business to receive a 20%

interest in the partnership. Goodwill was to be recorded. The four original
partners shared all profits and losses equally. After Eden made his
investment, what were the individual capital balances?

Eden's contribution of $124,000 to the partnership increases the

partnership's net assets to $475,000. The implied value of the partnership
is $620,000 ($124,000 ÷ 20%). Goodwill of $145,000 ($620,000 - $475,000)
resulted from this transaction.
The first entry requires that the goodwill be allocated to each of the original
four partners according to their profit and loss sharing percentages. As
indicated in the problem, the four original partners share profits and losses
equally.
 After allocating the goodwill to each of the original four partners, their
partnership capital balances are as follows:

The second step is to record Eden's cash contribution and to record Eden's
capital account balance:

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-09 Prepare journal entries to record a new partner's admission by a contribution made directly to
the partnership.
80. The ABCD Partnership has the following balance sheet at January 1, 2010,
prior to the admission of new partner, Eden.

Eden acquired a 20% interest in the partnership by contributing a total of

$71,500 directly to the other four partners. No goodwill is to be recorded.
Profits and losses have previously been split according to the following
percentages: Adams, 15%, Barnes, 35%, Cordas, 30%, and Davis, 20%. After
Eden made his investment, what were the individual capital balances?

The partnership's total net assets are still $351,000, because Eden's
$71,500 went to the partners. Using the book value method, each of the
original partners will give up 20% of their current capital balance to Eden.
The journal entry is:

The partners' balances following the admission of Eden are:

 AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-08 Prepare journal entries to record the acquisition by a new partner of either all or a portion of a
current partner's interest.
81. The ABCD Partnership has the following balance sheet at January 1, 2010,
prior to the admission of new partner, Eden.

Eden acquired a 20% interest in the partnership by contributing a total of

$71,500 directly to the other four partners. Goodwill is to be recorded.
Profits and losses have previously been split according to the following
percentages: Adams, 15%; Barnes, 35%; Cordas, 30%; and Davis, 20%. After
Eden made his investment, what were the individual capital balances?

Eden's contribution of $71,500 will go to the original four partners, not into
the partnership. Therefore, the partnership's total net assets remain
$351,000. The implied value of the partnership, based on Eden's
contribution, is $357,500 ($71,500 ÷ 20%). Goodwill arising out of this
transaction is $6,500.
First, the goodwill should be allocated to each of the original four partners:

The adjusted balances for the four original partners, after allocating
 goodwill, are:

The next step is to allocate 20% of each of the original partners' balances
to Eden:

The partners' capital balances after admitting Eden are:

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-08 Prepare journal entries to record the acquisition by a new partner of either all or a portion of a
current partner's interest.
82. Assume the partnership of Dean, Hardin, and Roth has been in existence
for a number of years. Dean decides to withdraw from the partnership
when the partners' capital balances are as follows:

An appraisal of the business and its property estimates the fair value to be
$100,000. Dean has agreed to receive $64,000 in exchange for his
partnership interest.

Prepare the journal entry for the payment to Dean in the dissolution of his
partnership interest, assuming the bonus method is to be applied.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
83. Assume the partnership of Dean, Hardin, and Roth has been in existence
for a number of years. Dean decides to withdraw from the partnership
when the partners' capital balances are as follows:

An appraisal of the business and its property estimates the fair value to be
$100,000. Dean has agreed to receive $64,000 in exchange for his
partnership interest.

What are the remaining partners' capital balances after Dean's interest is
dissolved, assuming the bonus method is applied?

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
84. Assume the partnership of Howell, Madrid, and Waldrop has been in
existence for a number of years. Howell decides to withdraw from the
partnership when the partners' capital balances are as follows:

An appraisal of the business and its net assets estimates the fair value to
be $154,000. Land with a book value of $20,000 has a fair value of $35,000.
Howell has agreed to receive $84,000 in exchange for her partnership
interest.

Prepare the journal entries for the dissolution of Howell's partnership

interest, assuming the goodwill method is to be applied.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
85. Assume the partnership of Howell, Madrid, and Waldrop has been in
existence for a number of years. Howell decides to withdraw from the
partnership when the partners' capital balances are as follows:

An appraisal of the business and its net assets estimates the fair value to
be $154,000. Land with a book value of $20,000 has a fair value of $35,000.
Howell has agreed to receive $84,000 in exchange for her partnership
interest.

What are the remaining partners' capital balances after Howell's interest is
dissolved, assuming the goodwill method is applied?

Madrid: $33,000 = ($15,000 + $18,000)

Waldrop: $37,000 = ($25,000 + $12,000)

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 2 Medium
Learning Objective: 14-10 Prepare journal entries to record the withdrawal of a current partner.
86. On January 1, 2011, Lamb and Mona LLP admitted Noris to a 20% interest
in net assets for an investment of $50,000 cash. Prior to the admission of
Noris, Lamb and Mona had net assets of $100,000 and an income-sharing
ratio of 25% to Lamb and 75% to Mona. After the admission of Noris, the
partnership contract included the following provisions:

• Salary of $40,000 a year to Noris.

• Remaining net income in ratio Lamb 20%, Mona 60%, Noris 20%
• During the fiscal year ended December 31, 2011, the partnership had
income of $90,000 prior to recognition of salary to Noris.

Record the journal entry for the admission of Noris. Goodwill is not to be
recorded.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-03 Prepare the journal entry to record the initial capital investment made by a partner.
87. On January 1, 2011, Lamb and Mona LLP admitted Noris to a 20% interest
in net assets for an investment of $50,000 cash. Prior to the admission of
Noris, Lamb and Mona had net assets of $100,000 and an income-sharing
ratio of 25% to Lamb and 75% to Mona. After the admission of Noris, the
partnership contract included the following provisions:

• Salary of $40,000 a year to Noris.

• Remaining net income in ratio Lamb 20%, Mona 60%, Noris 20%
• During the fiscal year ended December 31, 2011, the partnership had
income of $90,000 prior to recognition of salary to Noris.

Record the journal entry to allocate the salary of Noris.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
88. On January 1, 2011, Lamb and Mona LLP admitted Noris to a 20% interest
in net assets for an investment of $50,000 cash. Prior to the admission of
Noris, Lamb and Mona had net assets of $100,000 and an income-sharing
ratio of 25% to Lamb and 75% to Mona. After the admission of Noris, the
partnership contract included the following provisions:

• Salary of $40,000 a year to Noris.

• Remaining net income in ratio Lamb 20%, Mona 60%, Noris 20%
• During the fiscal year ended December 31, 2011, the partnership had
income of $90,000 prior to recognition of salary to Noris.

Record the journal entry to record the remainder of net income to the
capital accounts.

AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 1 Easy
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
89. James, Keller, and Rivers have the following capital balances; $48,000,
$70,000 and $90,000 respectively. Because of a cash shortage James
invests an additional $12,000 on June 1st. Each partner withdraws $1,000
per month. James, Keller, and Rivers receive a salary of $13,000, $15,000
and $20,000, respectively, for work done during the year. Each partner
receives interest of 8% on their weighted average capital balance without
regard to normal drawings. Any remaining profits are split 20%, 30%, and
50% respectively. The net income for the year is $30,000. What are the
ending capital balances for each partner?

Remaining income (loss):

CALCULATION OF JAMES INTEREST ALLOCATION

 AACSB: Analytic
AICPA BB: Legal
AICPA FN: Measurement
Blooms: Apply
Difficulty: 3 Hard
Learning Objective: 14-05 Understand the impact that the allocation of partnership income has on the partners' individual
capital balances.
Learning Objective: 14-06 Allocate income to partners when interest and/or salary factors are included.
Another random document with
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beginning at Constantinople and going on to the Mediterranean. He
visits, one after the other, Greece, Malta, Sicily, Spain, the South of
France; he even goes so far as Chambéry and Lyons. An
opportunity turns up, and off he sets for Paris.
“The innovations made by Joseph II., such as the
introduction of the Register and military conscription, caused
him to be employed as an engineer, and as a member of the
administrative body formed to carry out these different
schemes. His independent character instantly displayed itself
in a sphere where it was no longer repressed by that duty of
blind obedience which is the very being of the Army. He could
now venture to have an opinion and to express it, he could
criticise the root-idea on the form of an enterprise by
displaying its difficulties or foretelling its non-success
(forecasts, moreover, which time has proved to be sound); he
could speak of the violation of national justice, of a legitimate
resistance to arbitrary power. His experiences under fire, his
activity, and his oratorical talent gave him a position among
the malcontents which he had not sought in any way. In
consequence, he ventured on something more than mere
speaking and writing. His travels, his qualities, his
independent and decided character have won for him
friendships and acquaintanceships which have given him the
advantage of never finding himself out of place in any
important centre of affairs. To this he owes that knowledge of
the hereditary prejudices and the sudden caprices of
Cabinets, which when joined to an equal knowledge of the
character of their chiefs, ministers, constitutes diplomacy. To
assiduous study he attributes that understanding of the true
interests of Governments, and of their respective powers,
which constitutes international politics.”
Such was the personage to whom Lady Atkyns and Peltier
entrusted their enterprise. If they looked after him carefully, granted
him only a limited discretion, and took the fullest advantage of his
intelligence and his talents, they would probably make something of
the Hungarian nobleman. This was not the Baron’s first visit to Paris;
he knew the capital well. He had come there at the beginning of the
Revolution, in 1789, and, if we are to believe his own account, “he
saw the results of all these horrors, but was merely laughed at. If all
mankind could have been armed against the Revolution, he would
have armed them!” Moreover, he had kept up many connections in
Paris. By his own account, the Austrian Minister, Thugut, whom he
had formerly met at Naples, had taken him into his confidence. In
short, his friends in London could not have made a better choice, as
he wrote from Amiens to Peltier on the receipt of his proposal.
“I start for Paris at full speed at five o’clock to-morrow
morning. I need not tell you that from this moment I shall
devote myself to the business of which you have spoken to
me, nor need I add that this devotion is entirely disinterested.
If I had not already proved those two things to you, I should
not be the man you require. But, just because I feel that I
have the head and the heart necessary for your enterprise, I
tell you frankly that it can only be carried out at great
expense. The business of getting information—which is only a
preparatory measure—is made difficult, if not impossible,
unless a considerable sum of money can be spent.... I believe
myself authorized to speak to you in this way, because I have
the advantage—rare enough amongst men—of being above
suspicion with regard to my own interests.”[39]
On Wednesday, December 19, d’Auerweck entered Paris, and put
up at a hotel in the Rue Coq-Héron, where he gave his name as
Scheltheim. He instantly set to work to get the letters he had brought
with him delivered at their addresses, and to make certain of the co-
operation which was essential to him. But there was a
disappointment in store; Goguelat, upon whom so much depended,
was away from Paris, and, as it happened, in London. It was
necessary to act without him, and this was no easy matter. The
excitement caused by the trial of the King enforced upon the plotters
a redoubled caution. D’Auerweck got uneasy when he found no
letters coming from Peltier in answer to his own. He went more
frequently to Versailles, and to Saint-Germain, and kept on begging
for funds. On December 25, the day before M. de Sèze was to
present the King’s defence to the Convention, d’Auerweck wrote to
Peltier—
“The persons (you know whom I mean) do not care to
arrive here before Thursday, which is very natural, for there is
all sorts of talk as to what may happen to-morrow.... You
promised me to write by each post; but there can be no doubt
that you forgot me on Tuesday, the 18th, for otherwise I must
have had your letters by this time. One thing I cannot tell you
too often: it is that I consider it essential to take to you in
person any documents that I may be able to procure.”[40]
The documents in question were those which Peltier had alluded
to, some days before, in a letter to Lady Atkyns: “I heard to-day that
there was some one in Paris who had all the plans that you want in
the greatest detail;”[41] and at the end of the month he returned to
the subject—
“I am expecting, too, a most exact plan of the Temple
Prison, taken in November; and not only of the Temple, but
also of the caves that lie under the tower—caves that are not
generally known of, and which were used from time
immemorial for the burial of the ancient Templars. I know a
place where the wall is only eighteen inches thick, and
debouches on the next street.”
It becomes evident that Peltier and Lady Atkyns, almost
abandoning any hope of saving the King, whose situation appeared
to them to be desperate, now brought all their efforts to bear upon
the other prisoners of the Temple.
“If His Majesty persists in his reluctance to be rescued from
prison, at least we may still save his poor son from the
assassins’ knives. A well-informed man told me, the day
before yesterday, when we were talking of this deplorable
business, that people were to be found in Paris ready, for a
little money, to carry off the Dauphin. They would bring him
out of the Temple in a basket, or else disguised in some
way.... I believe that to save the son is to save the father also.
For, after all, this poor child cannot be made the pretext for
 any sort of trial, and as the Crown belongs to him by law on
his father’s death, I believe that they would keep the latter
alive, if it were only to checkmate those who would rally round
the Dauphin. But, in the interval, things may have time to
alter, and circumstances may at last bring about a happy
change in this disastrous state of things.”
The month of December went by in this painful state of suspense.
What anxiety must have fretted the heart of the poor lady, as she
daily followed in the Gazette the course of the Royal Trial! On New
Year’s Day she had some further words of encouragement from her
friend in London. All was not lost; Louis XVI. could still reckon, even
in the heart of Paris, upon many brave fellows who would not desert
him; and besides, what about the fatal consequences that would
follow on the crime of regicide? The Members of Convention would
never dare—never....
Fifteen days later comes another missive; and this time but little
hope is left. The “Little Baron”—this was what they called
d’Auerweck—was not being idle. Peltier had made an opportunity for
him of seeing De Sèze, the King’s counsel.
“This latter ought to know for certain whether the King does
or does not intend to await his sentence or to expose himself
to the hazards of another flight; but there seems to be very
little chance of his consenting to it. Whatever happens”
(added Peltier), “your desires and your efforts, madam, will
not be wasted, either for yourself or for history. I possess, in
your correspondence, a monument of courage and devotion
which will endure longer than London Bridge.... A trusty
messenger who starts to-morrow for Paris affords me a
means of opening my mind to De Sèze for the third time.”
But it was too late. On January 15 the nominal appeal upon the
thirty-three questions presented to the Members of Convention had
been commenced; two days later the capital sentence was voted by
a majority of fifty-three.
On January 21, at the hour when the guillotine had just done its
work, the following laconic note reached Ketteringham to say that all
was over:—
“My honoured friend, all we can do now is to weep. The
crime is consummated. Judgment of death was pronounced
on Thursday evening. D’Orleans voted for it, and he is to be
made Protector. We have nothing now to look forward to but
revenge; and our revenge shall be terrible.”
Think of the look that must have fallen upon that date, “January
21!” The postmark of the letter still shows it quite clearly, on the
yellowed sheet.
Could they possibly have succeeded if the King had listened
favourably to their proposal? It is difficult to say. But it is certainly a
fact, that during the last six months of 1792 there had been on the
water, near Dieppe, a cruising vessel which kept up a constant
communication with the English coast. The truth was that, finding the
Rouen route too frequented, Peltier had judged the Dieppe one to be
infinitely preferable. It was that way that the fish merchants came to
Paris. If they had succeeded in getting the King outside the Temple
gates it is probable that his escape would have been consummated.
But the prison was heavily guarded at that time, and during the trial
these precautions were redoubled.
At any rate, there is no doubt that Louis knew of the attempts to
save him from death. Some time after the event of January 21, Clery,
speaking of the King to the Municipal, Goret, remarked—
“Alas! my dear good master could have been saved if he
had chosen. The windows in that place are only fifteen or
sixteen feet above the ground. Everything had been arranged
for a rescue, while he was still there, but he refused, because
they could not save his family with him.”
There can be no doubt that these words refer to the attempt of
Lady Atkyns and Peltier.[42] The assent of the King had alone been
wanting to its execution.
It is well known what a terrible and overwhelming effect was
produced in the European Courts by the news of the King’s
execution. In London it was received with consternation. Not merely
the émigrés (who had added to their numbers there since the
beginning of the Revolution) were thunderstruck by the blow, but the
Court of King George was stupefied at the audacity of the National
Assembly. The Court went instantly into mourning, and the King
ordered the French Ambassador, Chauvelin, to leave London on the
spot. Some days later war was officially declared against France.[43]
The King’s death caused the beginning of that struggle which was
to last so many years and be so implacably, ferociously waged on
both sides.

Any one but Lady Atkyns would have lost heart, but that heroic
woman did not allow herself to be cast down for an instant. Amid the
general mourning, she still cherished her hopes; moreover, those
who had been helping her had not abandoned her. The “Little Baron”
was still in Paris, awaiting orders, but the gravity of the situation had
obliged him to leave the Hotel Coq-Héron, where his life was no
longer in safety. Well, they had failed with the King; now they must
tempt fortune, and save the Queen and her children. The lady at
Ketteringham was quite sure of that.
“Nothing is yet decided about the Queen’s fate” (Peltier had
written to her at the end of January), “but it has been
proposed at the Commune of Paris to transfer her either to
the prison of La Force or of La Conciergerie.”
Then Lady Atkyns had an idea. Why should she not go in person
to Paris and try her chance? Probably the surveillance which had
been so rigorously kept over the King would be far less severe for
the Queen. And one might profit by the relative tranquillity, and
manage to get into the Temple, and then—who could tell what one
might not devise in the way of carrying the Queen off, or of
substituting some one else for her? She never thought of all the
dangers around her, and of the enormously increased difficulties in
the path for a foreign lady who knew only a little French. Peltier, to
whom she confided her plan, tried to dissuade her.
 “You will hardly have arrived before innumerable
embarrassments will crop up; if you leave your hotel three
times in the day, or if you see the same person thrice, you will
become a suspect.”
But his friend’s persistence ended by half convincing him, and he
admitted that the moment was relatively favourable, and that it was
well to take advantage of it, if she wished to attempt anything.
Unluckily, things were moving terribly fast in Paris. There came the
days of May 31 and June 2, the efforts of the sections against the
Commune, civil war let loose. In the midst of this storm, Lady Atkyns
feared that the whole affair might come to nought; her arrangements,
moreover, were not completed. Money, which can do so much,
decide so much, and which had already proved so powerful—money,
perhaps, was not sufficiently forthcoming. Suddenly there is a
rumour that a conspiracy to favour the Queen’s escape has been
discovered. Two members of the Commune, Lepitre and Toulan, who
had been won over to the cause by a Royalist, the Chevalier de
Jarjays, had almost succeeded in carrying out their scheme, when
the irresolution of one of them had ruined everything; nevertheless,
they were denounced.[44] Public attention, which had been averted
for a moment, now was fixed again upon the Temple Prison.
And the days go by, and Lady Atkyns sees no chance of starting
on her enterprise.
We come here to an episode in her life which seems to be
enveloped in mystery. One fact is proved, namely, that Lady Atkyns
succeeded in reaching Marie Antoinette, disguised, and at the price
of a large sum of money. But when did this take place? Was the
Queen still at the Temple, or was it after she had been taken to the
Conciergerie? The most reliable witnesses we have—and they are
two of Lady Atkyns’ confidants—seem to contradict one another.[45]
A careful weighing of testimony and an attentive study of the letters
which Lady Atkyns received at this time lead us to conclude, with
much probability, that the attempt was made after the Queen had
been transferred to the Conciergerie; that is to say, after August 2,
1793.[46]
 Some days before this Peltier had again brought her to give up her
resolve, assuring her that she was vainly exposing herself to risk—
“If you wish to be useful to that family, you can only be so
by directing operations from here (instead of going there to
get guillotined), and by making those sacrifices which you
have already resolved to make.”
It was of no use. The brave lady listened only to her heart’s
promptings, and set out for Paris. If we are to believe her friend, the
Countess MacNamara[47]—and her testimony is valuable—she
succeeded in winning over a municipal official, who consented to
open the doors of the Conciergerie for her, on the condition that no
word should be exchanged between her and the Royal prisoner.
Moreover, the foreign lady must wear the uniform of a National
Guard. It was Drury Lane over again! She promised everything, and
was to content herself with offering a bouquet to the Queen; but
under the stress of the intense emotion she experienced on meeting
once more the eyes of the lady whom she had not seen since the
days at Versailles, she let fall a note which she held, and which was
to have been put into the Queen’s hand with the bouquet. The
Municipal officer was about to take possession of it, but, more
prompt than he, Lady Atkyns rushed forward, picked it up, and
swallowed it. She was turned out brutally. Such was the result of the
interview. But the English lady did not stop there. By more and more
promises and proceedings, by literally strewing her path with gold,
she bought over fresh allies, and this time she obtained the privilege
of spending an hour alone with the Queen—at what a price may be
imagined! It is said that she had to pay a thousand louis for that
single hour. Her plan was this: to change clothes with the Queen,
who would then leave the Conciergerie instead of her. But she met
with an obstinate refusal. Marie-Antoinette would not, under any
pretext, sacrifice the life of another, and to abandon her imprisoned
children was equally impossible to her. But what emotion she must
have felt at the sight of such a love, so simple, so whole-hearted,
and so pure! She could but thank her friend with tearful eyes and
commend her son, the Dauphin, to that friends tender solicitude. She
also gave her some letters for her friends in England.[48]
 On leaving the Conciergerie, one thought filled the mind of Lady
Atkyns: she would do for the son what she had not been able to do
for the mother—she would drag the little Dauphin out of the Temple
Prison.

Did she return to England immediately afterwards? Probably. For

one thing, she had not lost all hope, and, like the rest of her friends,
she did not as yet fear instant danger for the Queen’s life. This is
proved by a note from Peltier, written in the course of the month of
September, which reveals the existence of a fresh plan.
“They must set out on Thursday morning at latest; if they
delayed any longer, the approach of the Austrian troops, and
the movements which have taken place at Paris, might, we
fear, determine the members of the Convention to fly and take
with them the two hostages whom we want to save. One
day’s, two days’ delay may make all the difference. If they are
to start on Thursday morning, and go to Brighton and charter
a neutral vessel, they have only Monday, Tuesday, and
Wednesday to spend, day and night, in getting everything
ready. First of all, we must get some louis d’or, and sew them
in their belts. Then we must get some paper-money, if it’s only
for the journey along the coast to Paris, so that they may not
be suspected.... We must have time to prepare passports that
will do for the three persons who are to go. These passports
must be made to look like the letters that Mr. Dundas is
sending for the Jacobins who are being deported from
France. They are thus less likely to be suspected.... The
Temple affair is all arranged; but, as to the Conciergerie one,
nothing is known as yet; the last letters from the Paris agents
are dated July 26th. We are sure that the persons interested
have taken measures, but we do not know what they are. It
would not be a bad plan to have some money in reserve for
this purpose. It would be dreadful to think we had missed our
chance for the sake of two or three hundred louis, which
 would make 1500 guineas. Therefore each man ought to
carry on his person about 450 louis, or 200 double-louis,
because about 50 louis would be spent in paper-money.
“There will also be a line of communication between France
and England, by means of M——, who resides near Dieppe,
on the coast, and who up to now has received and passed on
constant communications. We shall have to know of all the
movements either of the armies, or of the fleets, so as to
direct our operations accordingly.... Circumstances have
made it very dangerous to employ foreigners, since the
Decree of August 5 has banished them from France. But what
difference is there between doing a thing one’s self and
causing it to be done? The glory which one shares with others
is glory none the less so long as the great purpose is
attained.... How can I be sure if this plan does succeed, it will
not be displeasing to the lady who would have liked to carry
off her friends with her own hands, and then to lead them in
triumph, etc., etc.?... But as we are concerned, not with an
opera, but an operation, the best proof of affection will be to
sacrifice that glory and that joy. And, besides, that lady will not
then be running the risks which formerly made existence
hateful to me. If my friends perish in this affair, I shall at least
not have to listen to a son’s and a mother’s reproaches for the
loss of their Charlotte....”[49]
It is clear from these lines that the communications established
with the Temple and outside it were still kept in working order against
a favourable opportunity. The agents in question were probably
those who have been already mentioned, two of whom were the
bodyguards of the Queen. But Lady Atkyns’ money had also had its
effect, even among those “Incorruptibles” which the Revolution
created in such numbers; and the events which we shall now read of
can only be explained by the co-operation, not only of one or two
isolated persons, but of a quantity of willing helpers, cleverly won
over, and belonging to a circle in which it could scarcely have been
hoped that they were to be found.
 In the midst of all this, the Baron d’Auerweck (whom we last saw in
Paris), judging, doubtless, that his presence there was unavailing,
went back to London. The situation in France was more than critical.
The formation of a fresh Committee of Public Safety, the activity of
the Revolutionary Tribunals, in a word, the Terror in full blast,
rendered any stay in Paris impossible for already suspected
foreigners, and our Baron made haste to bring to his friends all the
latest information.
Peltier, who was impatiently awaiting him, on communicating his
arrival to Lady Atkyns, wrote thus:—
“My heart is too full of it for me to speak to you of anything
but the arrival of my friend, the Baron d’Auerweck. He left
France two days ago, and is now here, after having run every
imaginable risk, and lost everything that could be lost.... We
have the Paris news from him up to the 23rd; the Queen was
still safe then. The Baron does not think she will be sacrificed.
Danton and the Cordeliers are for her, Robespierre and the
Jacobins against. Her fate will depend upon which of the two
parties triumphs. The Queen is being closely guarded—the
King, hardly at all. The Queen maintains a supernatural
strength and dignity.”[50]
It was in London itself, at the Royal Hotel, that Lady Atkyns
received these lines. She had hastened there so as to be better able
to make inquiries.
But the Decree issued by the Convention, on October 3, ordering
the indictment of the “Widow Capet,” give a curious contradiction to
the assurances given by d’Auerweck. After all, though, who could
dare to forecast the future, and the intentions of those who were now
in power? The ultra-jacobin politicians knew less than any one else
whither Destiny was to lead them. Had there not been some talk, a
few weeks earlier, of getting the Queen to enter into the plan of a
negotiation with Austria? So it was not surprising that illusions with
regard to her reigned in Paris as well as among the émigrés in
London.
 Eleven days later Marie-Antoinette underwent a preliminary
examination at the bar of the Revolutionary Tribunal. The suit was
heard quickly, and there were no delays. Of the seven witnesses
called, the last, Hébert, dared to bring the most infamous
accusations against her, to which the accused replied only by a
disdainful silence. Then came the official speeches of Chaveau-
Lagarde and of Tronson-Ducoudray—a mere matter of form, for the
“Austrian woman” was irrevocably doomed.
On the third day, October 16, at 4.30 a.m., in the smoky hall of the
Tribunal, by the vague light of dawn, the jury gave their verdict,
“Guilty”; and sentence of death was immediately pronounced. Just
on eleven o’clock the cart entered the courtyard of the Conciergerie
Prison, the Queen ascended, and, after the oft-described journey,
reached the Place de la Revolution. At a quarter past twelve the
knife fell upon her neck.
All was over this time—all the wondrous hopes, the last, long-
cherished illusions of Lady Atkyns. The poor lady heard of the
terrible ending from Peltier. Her friend’s letter was one cry of rage
and despair, more piercing even than that of January 21.
“It has killed me. I can see your anguish from here, and it
doubles my own. My anger consumes me. I have not even
the relief of tears; I cannot shed one. I abjure for ever the
name of Frenchman. I wish I could forget their language. I am
in despair; I know not what I do, or say, or write. O God! What
barbarity, what horror, what evils are with us, and what
miseries are still to come! I dare not go to you. Adieu, brave,
unhappy lady!”[51]
Many tears must have fallen on that treasured sheet. And still, to
this day, traced by Lady Atkyns’ hand, one can read on it these
words: “Written after the murder of the Queen of France.”
Were all her efforts, then, irremediably wasted? She refused to
believe it. And at that moment two fresh actors appeared on the
scene, whose help she could utilize. From the friendship of one, the
Chevalier de Frotté (who came to London just then), she could
confidently hope for devoted aid. The other, a stranger to her until
then, and only recently landed from the Continent, was destined to
become one of the principal actors in the game that was now to be
played.

FOOTNOTES:
[29] Albert Sorel, L’Europe et la Revolution Française, vol. ii. p.
382.
[30] Forneron, Histoire Générale des Émigrés, Paris, 1884, vol.
ii. p. 50.
[31] Abbé de Lubersac, Journal historique et réligieux, de
l’émigration et déportation du clergé de France en Angleterre,
dedicated to His Majesty the King of England, London, 1802, 8vo,
p. 12. (The author styles himself: Vicar-General of Narbonne,
Abbé of Noirlac and Royal Prior of St.-Martin de Brivé, French
émigré.)
[32] Count d’Haussonville, Souvenirs et Mélanges, Paris, 1878,
8vo.
[33] Gauthier de Brecy, Mémoires véridiques et ingenus de la
vie privée, morale et politique d’un homme de bien, written by
himself in the eighty-first year of his age, Paris, 1834, 8vo, p. 286.
[34] Sorel, L’Europe et la Révolution Française, vol. iii. pp. 288,
289.
[35] On October 21, 1765, at Gonnord, Maine-et-Loire, Canton
of Touarcé, arrondissement of Angers.
[36] Letter from Peltier to Lady Atkyns, dated from London,
November 15, 1792.—Unpublished Papers of Lady Atkyns.
[37] “In case of our not being able to find M. Goguelat, I have
my eye upon a very useful man whom I have known for many
years, and who was, indeed, a collaborator in some of my political
works—he is the Baron d’Auerweck, a Transylvanian nobleman, a
Royalist like ourselves, of firm character, and very clever.”—Letter
from Peltier, Dec. 3, 1792.
[38] In two autobiographical memoirs, one written at Hamburg,
June, 1796, and annexed to a despatch from the French Minister
there, Reinhard (Archives of the Foreign Office, Hamburg, v. 109,
folio 367). The other was written at Paris, July 25, 1807 (National
Archives, F. 6445). Both naturally aim at presenting the author in
the most favourable light.
[39] Letter from Baron d’Auerweck, December 17, 1792. It is
addressed to Peltier under the name of Jonathan Williams.—
Unpublished Papers of Lady Atkyns.
[40] Letter from d’Auerweck to Peltier, Paris, Hotel Coq-Héron,
No. 16 December 25, 1792.—Unpublished Papers of Lady
Atkyns.
[41] Letter from Peltier to Lady Atkyns, London, December 7,
1792.—Ibid.
[42] Narrative of the Municipal, Charles Goret, in G. Lenôtre’s
book, La Captivité et la Mort de Marie-Antoinette, Paris, 1902,
8vo, p. 147.
[43] February 1, 1793.
[44] On this plot, see Paul Gaulot, Un Complot sous la Terreur,
Paris, 1902, duodecimo.
[45] These are the Chevalier de Frotté and the Countess
MacNamara.
[46] In the narrative of the Chevalier de Frotté, who mentions
the Temple Prison (published by L. de la Sicotière, Louis de Frotté
et les Insurrections Normandes, vol. i. p. 429), we consider that a
somewhat natural confusion has arisen. It is, in fact, very difficult
to assign any date earlier than August 6 for an attempt at the
Temple; for on that date there is a letter from Peltier addressed to
Lady Atkyns at Ketteringham, and there can be no doubt that if
the lady had already left England, Peltier would have been aware
of it. On the other hand, the letter published by V. Delaporte (p.
256), and given as written at the end of July, 1793, must be
subsequent to August 2. These phrases: “They will not promise
for more than the King and the two female prisoners of the
Temple; they will do what is possible for the Queen; but
everything is changed, and they cannot answer for anything, and,
as to the Queen, they can say nothing as yet, for they have tried
the Temple Prison only”—these phrases plainly show that the
Queen was no longer at the Temple then. Finally, since in his
letter at the beginning of August Peltier once more tried to
dissuade Lady Atkyns from coming to Paris, it seems rational to
conclude that the lady had not yet carried out her plan.
 [47] The testimony of the Countess MacNamara was obtained
by Le Normant des Varannes, Histoire de Louis XVII., Orleans,
1890, 8vo, pp. 10-14, and he had it from the Viscount d’Orcet,
who had known the Countess. Although we cannot associate
ourselves with the writer’s conclusions, we must acknowledge
that whenever we have been able to examine comparatively the
statements of Viscount d’Orcet relating to Lady Atkyns we have
always found them verified by our documents.
[48] It has been sought to establish a connection between this
story and the conspiracy of the Municipal, Michouis (the “Affair of
the Carnation”), aided by the Chevalier de Pougevide, which
failed by the fault of one of the two gendarmes who guarded the
Queen. There may be some connection between the principal
actors in these simultaneous attempts, but we admit that we have
been unable to get any proof of it. It was necessary to take so
many precautions, to avoid as far as possible any written
allusions, and to veil so impenetrably the machinery of the plots,
that it is not surprising that the documents, curt and dry as they
are, reveal to us so few details.
[49] Note in Peltier’s handwriting.—Unpublished Papers of Lady
Atkyns.
[50] Undated letter from Peltier to Lady Atkyns.—Unpublished
Papers of Lady Atkyns.
[51] Unpublished Papers of Lady Atkyns.
 CHAPTER III
THE ODYSSEY OF A BRETON MAGISTRATE

On December 8, 1740, in the Rue de Montfort, at Rennes, there

were great rejoicings in one of the finest houses of that provincial
capital. Monsieur Yves-Gilles Cormier, one of the rich citizens, had
become the father of an heir the night before; and this heir was to be
named Yves-Jean-François-Marie. The delighted father was getting
ready to go to the Church of Saint-Sauveur (about two steps from his
abode), there to present his son for the Sacrament of Holy Baptism.
He had invited to this solemnity his relative, Master (Messire)
Jean-François Cormier, Prior and Rector of Bazouges-du-Desert,[52]
and his neighbour, the Director of the Treasury in the States of
Brittany, M. de Saint-Cristan. Madame Françoise Lecomte, wife of
the Sieur Imbault, Chief Registrar of the Chamber of La Tournelle, in
the Parliament of Brittany, and Dame Marie-Anne Lardoul were also
among the guests, who enhanced by their presence the splendour of
the ceremony.[53] When the bells rang out the cortège was entering
the church porch; shortly afterwards it reissued thence, and went
towards the house attached to the Treasury of Brittany, where Mme.
Cormier (formerly au Egasse du Boulay) was impatiently awaiting
their return.
The Cormiers were a family highly respected at Rennes. By his
own labours, Yves Cormier had made a fine fortune, which placed
him and his above any kind of need. Four years later a second child,
a daughter this time, was born. She was given the names of
Françoise-Michelle-Marie.
Yves-François grew up, a worker like his father, a sage follower of
parental advice, and both intelligent end gifted. After leaving school
he entered the Law Schools at Rennes, and before he was twenty
he had got his degree and been entered (on August 18, 1760) as a
barrister. Less than a year later the position of Crown Counsel at
Rennes falling vacant, the young barrister applied for it, his youth
notwithstanding, and obtained it (by Lettres de provision) on August
10, 1761.
This was a rapid advance in his career, and his parents might
justly be proud of it; but fortune meant to lavish very special favours
on the young magistrate, for on October 27 in the following year,
another position falling vacant in the same department—that of
Crown Prosecutor—Yves Cormier, exchanging the sitting magistracy
for the standing, obtained the place. Crown Prosecutor at twenty-
two! This was a good beginning.
For fifteen years he practised at Rennes. That town was going
through troublous times. The arrival of the Duc d’Aiguillon as
Governor, and his conduct in that position, created an uproar in the
ancient city, jealous, as it had always been, of its liberties. The states
proclaimed themselves injured in their rights. Led by La Chalotais,
they obstinately fought against the claims of the King’s
representative, the Duke d’Aiguillon. And there ensued an
interminable paper-war—pamphlets, libels, insults—which did not
cease even with the imprisonment of La Chalotais and his followers.
Ancient quarrels against the Jesuits were mixed up with these
complaints of the encroachments of Royal; and the angry Chalotistes
ended by accusing them of being the cause of all their misfortunes.
It was naturally impossible for the Crown Prosecutor to escape
being mixed up in a business which caused such rivers of ink to flow,
and created such an endless succession of lawsuits. A police report
accused him “of having ‘done a job’ in the La Chalotais affair.” But he
had only played a very passive part in it. His name only figures
once[54] in the voluminous dossiers so meticulously rummaged
through of late years; and that is in a defamatory pamphlet (which,
moreover, was torn and burnt by parliamentary decree), denouncing
him as a participator in those Jesuit Assemblies, upon which the full
wrath of the Breton parliamentarians descended.[55] The utmost one
can say is that Cormier perhaps inclined towards the Duc
d’Aiguillon’s party, which, moreover, his position as Crown
Prosecutor more or less obliged him to do.
Was it at that time that he began to pay repeated visits to Paris?
Very likely. At all events, from 1776 Yves Cormier practised only
intermittently. His father was dead. He lived with his mother on the
second floor of the Rue de Montfort house. Tired of bachelor life, the
young magistrate, who was then entering his thirty-sixth year,
resolved to marry. He had met in Paris a young lady from Nantes,
who belonged to a family of rich landowners in Saint-Domingo. Her
name was Suzanne-Rosalie de Butler; she was a little younger than
he, and had rooms in the La Tour du Pin Hotel, Rue Vieille-du-
Temple.
On July 10, 1776, in presence of notaries of the Du Châtelet
district, M. Cormier and Mademoiselle de Butler signed their
marriage contract.[56] By a rather unusual clause, the future husband
and wife, “departing in this respect from the custom of Paris,”
declared that they didn’t intend to sign the usual communauté de
biens, but that each would retain as his and her own property
whatever they brought to the marriage.
The husband’s property consisted of his appointment as Crown
Prosecutor at Rennes, and, further, of different lands and estates
which his father had bequeathed to him, at and near Rennes, and,
finally, in “his furniture, linen, wearing-apparel, etc., which were
stored in his place of abode.” The magistrate’s wardrobe was
remarkably well stocked, to judge by the enumeration we give below.
[57] It must have been a difficult matter to choose between the
“winter, spring, autumn, and summer garments;” the breeches of
“velvet patterned with large flowers,” or with “little bouquets”; the
coats of purple cloth, grey cloth, embroidered gourgouran, black-
and-olive taffetas, or green musulmane! And then there were jewels,
and there were carriages for one person called désobligeantes, to
say nothing of hats, frills, and lace cuffs.
Nor did Mlle. de Butler fall in any way below this standard. Her
father, Count Jean-Baptiste Butler, deceased, had bequeathed her,
in joint tenancy with her brother, Patrice, a rich state in Saint-
Domingo, one of the most flourishing colonies at that time. This state
was the farm and dwelling-house of Bois-de-Lance in the parish of
Sainte-Anne de Limonade, “with the negroes, negresses, negro-boys
and negro-girls; pieces of furniture; utensils, riggings, horses, beasts,
and all other effects of any kind whatever, being on the said estate.”
This document recalls the state of slavery in which the Colony then
was. By a second marriage Comte de Butler had had a son, Jean-
Pantaléon, who was thus the half-brother of the future Mme.
Cormier, and who had also some liens on the property in question.
[58] Suzanne de Butler further brought her husband some estates in
France, arising from her father’s succession; and a very complete
array of household furniture, which was enriched by articles in
“mahogany, tulip-wood, and the wood peculiar to the island,” etc.
The marriage was celebrated some days later. Once settled at
Paris, it became difficult for the Crown Prosecutor to keep his
appointment at Rennes. Nevertheless, he did not resign it until
January 23, 1779. Two years earlier their first child had been born, a
boy, who was baptized at the Madeleine in Paris, and named Achille-
Marie. The parents were probably at that time living in the enormous
house which Mme. Cormier bought in the following year, No. 15 in
the Rue Basse-du-Rempart. It was a handsome house with a
courtyard and several entrances.
On March 10, 1779, arrived another son, who was called Patrice,
after his maternal uncle. His godmother was a sister of Mme.
Cormier, married to a former naval officer.
The management of his own estates, and, more particularly, those
of his wife, occupied the greater part of Cormier’s time in the years
preceding the Revolution. Of middle height, inclining to stoutness,
with greyish hair and an energetic type of face, the sometime Breton
magistrate was quite a personality, for he spoke remarkably well,
and, besides being most intelligent, had a real gift of persuasion. The
times that were now at hand seemed likely to provide him with a
prominent position on the revolutionary scene.
We know that, in view of the elections to the States-General, a
Royal Ordinance of April 13, 1789, had decreed the provisional
division of Paris into sixty districts.[59] A year later this mode of
division, being no longer useful, was replaced by a division into forty-
eight sections—those sections which, from August 10 onwards, were
to exercise so potent a political influence. Cormier was active from
the very first. The section of the Place Vendôme had scarcely been
formed before he occupied a prominent position therein. We see him
first as Commissary of the Section, then as President of its Civil
Committee. The General Assembly held its meetings in the old
Church of the Capuchins in the Place Vendôme; and Cormier, whose
home was close by, took part in the deliberations. He would have
played a more active part if other business had not taken up most of
his time.
Amongst the numerous monarchical clubs which then sprang up in
Paris, one had just been founded whose members, for the most part
rich planters from Saint-Domingo, used to meet in the Place des
Victoires, at the Hôtel Massiac. Their object was to counterbalance
what they held to be the pernicious influence exercised by a new
society originating in England. This was the Friends of the Blacks,
and had for its principal object the amelioration of the coloured race.
[60] The movement, begun by Wilberforce across the Channel, met
with many adherents in France, for it accorded well with the new
ideas of enfranchisement and liberty proclaimed by the National
Assembly. This very soon became clear to the landowners of the
Leeward Islands, who lived on the labour of their slaves, and whose
whole well-being depended on their continued existence as such.
Saint-Domingo was then in a state of astonishing prosperity. The
sugar plantations and the cultivation of indigo and cotton had made it
one of the chief colonies. If Wilberforce’s theories were to prevail
there, it was all over with the planters and the white people, who
formed the minority of the population.
Founded on August 20, 1789, the Hôtel Massiac Club intended to
oppose with all its strength the current of sympathy for the blacks,
which threatened to overflow the Assembly. Its members meant to
prevent at any cost the concession of rights to the mulattos
inhabiting the island, which would be the preliminary to granting