Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
Chapter 15 Partnerships: Formation, Operation, and Changes in Membership Multiple Choice Questions
1. A partnership is a(n): I. acconting entit!. entit!. II. ta"ab#e entit!. entit!. A. I on#! $. II on#! C. %either I nor II &. $oth I and II
'. A partners ta" basis in a partnership is comprised o *hich o the o##o*ing items+ I. he partners ta" basis o assets contribted to the partnership. II. he amont o the partners #iabi#ities assmed b! the other partners. III. he partners share o other partners #iabi#ities assmed b! the partnership. A. I p#s II mins III $. I p#s II p#s III C. I mins II p#s III &. I mins II mins III
In the A$C partnership (to *hich &anie# sees admittance), the capita# ba#ances o A#bert, $ert, and Conne##, *ho share income in the ratio o 5::' are:
. $ased on the preceding inormation, i no good*i## or bons is recorded, ho* mch sho#d &anie# in/est or a '0 percent interest+ A. 200,000 $. '00,000 C. 00,000 &. '50,000
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
2. $ased on the preceding inormation, *hat amont o good*i## *i## be recorded i &anie# in/ests 250,000 or a one-third interest+ A. 0 $. 10,000 C. 50,000 &. 100,000
3ones and 4mith ormed a partnership *ith each partner contribting the o##o*ing items:
Assme that or ta" prposes 3ones and 4mith agree to share ea##! in the #iabi#ities assmed b! the 3ones and 4mith partnership.
5. 6eer to the abo/e inormation. 7hat is each partners ta" basis in the 3ones and 4mith partnership+
A. Option A $. Option $ C. Option C &. Option &
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
8. 6eer to the abo/e inormation. 7hat is the ba#ance in each partners capita# acco nt or inancia# acconting prposes+
A. Option A $. Option $ C. Option C &. Option &
9. riin and 6hodes ormed a partnership on 3anar! 1, 1 , '00;. riin contribted cash o 1'0,000 and 6hodes contribted #and *ith a air /a#e o 180,000. he partnership assmed the mortgage on the #and *hich amonted to 20,000 on 3anar! 1. 6hodes origina##! paid ;0,000 or the #and. On 3#! 1, '00;, the partnership so#d the #and or 1;0,000. Assming riin and 6hodes share proits and #osses ea##!, ho* mch o the gain rom sa#e o #and sho#d be credited to riin or inancia# acconting prposes+ A. 0 $. 15,000 C. 5,000 &. 25,000
<. 7hich o the o##o*ing acconts co#d co #d be ond in the genera# #edger o a partnership+
A. Option A $. Option $ C. Option C &. Option &
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
;. 7hich o the o##o*ing acconts co#d co #d be ond in the P= partnerships genera# #edger+ I. &e rom P II. P, &ra*ing III. >oan Pa!ab#e to = A. I, II $. I, III C. II, III &. I, II, and III
10. he &?F partnership reported net income o 10,000 or the !ear ended &ecember 1, '00<. According to the partnership agreement, partnership proits and #osses are to be distribted as o##o*s:
@o* sho#d partnership net income or '00< be a##ocated to &, ?, and F+
A. Option A $. Option $ C. Option C &. Option &
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
11. he 3P$ partnership reported net income o 180,000 or the !ear ended &ecember 1, '00<. According to the partnership agreement, partnership proits and #osses are to be distribted as o##o*s:
@o* sho#d partnership net income or '00< be a##ocated to 3, P, and $+
A. Option A $. Option $ C. Option C &. Option &
he AP$ partnership agreement speciies that partnership net income be a##ocated as o##o*s:
A/erage A/erage capita# ba#ances or the crrent !ear *ere 50,000 or A, 0,000 or P, and '0,000 or $.
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
1'. 6eer to the inormation gi/en. Assming a crrent !ear net income o 150,000, *hat amont sho#d be a##ocated to each partner+
A. Option A $. Option $ C. Option C &. Option &
1. 6eer to the inormation gi/en. Assming a crrent !ear net income o 50,000, *hat amont sho#d be a##ocated to each partner+
A. Option A $. Option $ C. Option C &. Option &
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
12. 6& ormed a partnership on Febrar! 10, '00;. 6 contribted cash o 150,000, *hi#e & contribted in/entor! *ith a air /a#e o 1'0,000. &e to 6s e"pertise in se##ing, & agreed that 6 sho#d ha/e 80 percent o the tota# capita# o the partnership. 6 and & agreed to recognie good*i##. 7hat is the tota# capita# o the 6& partnership and the capita# ba#ance o 6 ater the good*i## is recognied+
A. Option A $. Option $ C. Option C &. Option &
15. A Boint /entre ma! be organied as a: I. Partnership. II. Corporation. III. ndi/ided interest. A. I on#! $. II on#! C. I or III on#! &. I, II, or III
18. 6eer to the abo/e inormation. 7hich statement be#o* is correct i a ne* partner recei/es a bons pon contribting assets into the partnership+ A. $ D A and & E C - A $. $ A and & E C G A C. A E $ and A E & G C &. $ A and C E & G A
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
19. 6eer to the abo/e inormation. 7hich statement be#o* is correct i the o#d partners recei/e a bons pon the contribtion o assets into the partnership b! a ne* partner+ A. $ D A and & E C - A $. $ G A and & C G A C. $ D A and & E C G A &. $ A and & E C G A
1<. 6eer to the abo/e inormation. 7hich statement be#o* is correct i good*i## o the o#d partners is recognied pon the contribtion o assets into the partnership b! a ne* partner+ A. $ E A and & D C G A $. $ E A and & C G A C. $ D A and & E C G A &. $ A and & D C G A
1;. 6eer to the abo/e inormation. 7hich statement be#o* is correct i a ne* partner prchases an interest in capita# direct#! rom the o#d partners+ A. C D & $. C E & C. C E & and $ E A &. C D & and $ E A
'0. 6eer to the abo/e inormation. 7hich statement be#o* is correct i a ne* partners good*i## is recognied pon contribting assets into the partnership+ A. $ E A and & C G A $. $ D A and & D C G A C. $ A and & E C G A &. $ A and & C G A
'1. 7hen a partnership is ormed, noncash assets contribted b! partners sho#d be recorded: I. at their respecti/e boo /a#es or income ta" prposes. II. at their respecti/e air /a#es or inancia# acconting prposes. A. I on#! $. II on#! C. $oth I and II &. %either I nor II
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
''. 7hen a ne* partner is admitted into a partnership and the ne* partner recei/es a capita# credit #ess than the tangib#e assets contribted, *hich o the o##o*ing e"p#ains the dierence+ I. he ne* partners good*i## has been recognied. II. he o#d partners recei/ed a bons rom the ne* partner. A. I on#! $. II on#! C. ?ither I or II &. %either I nor II
'. 7hen a ne* partner is admitted into a partnership and the ne* partner recei/es a capita# credit greater than the tangib#e assets contribted, *hich o the o##o*ing e"p#ains the dierence+ I. he o#d partners good*i## is being recognied. II. he ne* partners good*i## is being recognied. A. I on#! $. II on#! C. ?ither I or II &. $oth I and II
'2. 7hen a ne* partner is admitted into a partnership and the capita# o the o#d partners decreases, *hich o the o##o*ing e"p#ains the reason or the decrease+ I. nder/a#ed #iabi#ities *ere *ritten p to their air /a#es. II. nder/a#ed assets *ere *ritten p to their air /a#es. A. I on#! $. II on#! C. $oth I and II &. %either I nor II
'5. 7hen a partner retires rom a partnership and the retiring partner is paid more than the capita# ba#ance in her accont, *hich o the o##o*ing e"p#ains the dierence+ I. he retiring partner is recei/ing a bons rom the other partners. II. he retiring partners good*i## is being recognied. A. I on#! $. II on#! C. ?ither I or II &. %either I nor II
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
'8. 7hen the o#d partners recei/e a bons pon admission o a ne* partner into a partnership, the bons is a##ocated to: I. a## the partners in their proit and #oss sharing ratio. II. the e"isting partners in their proit and #oss sharing ratio. A. I on#! $. II on#! C. ?ither I or II &. %either I nor II
'9. 7hen a ne* partner is admitted into a partnership and the o#d partners good*i## is recognied, the good*i## is a##ocated to: I. a## the partners in their proit-and-#oss-sharing ratio. II. the o#d partners in their proit and #oss sharing ratio. A. I on#! $. II on#! C. ?ither I or II &. %either I nor II
In the 64 partnership, 6ons capita# is <0,000, 4te##as is 95,000, and ian!s is 50,000. he! share income in a :':1 ratio, respecti/e#!. ian! is retiring rom the partnership. ?ach o the o##o*ing estions is independent o the others.
'<. 6eer to the abo/e inormation. ian! is paid 80,000, and no good*i## is recorded. In the Borna# entr! to record ian!s *ithdra*a#: A. ian!, Capita# *i## be credited or 80,000. $. 6on, Capita# *i## be debited or 5,000. C. 4te##a, Capita# *i## be debited or 2,000. &. Cash *i## be debited or 80,000.
';. 6eer to the abo/e inormation. ian! is paid 80,000, and no good*i## is recorded. 7hat is the 6ons capita# ba#ance ater ian! *ithdra*s rom the partnership+ A. 92,000 $. 91,000 C. 95,000 &. <8,000
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
0. 6eer to the abo/e inormation. ian! is paid 58,000, and a## imp#ied good*i## is recorded. 7hat is the tota# amont o good*i## recorded+ A. 0 $. 8,000 C. 0,000 &. 8,000
In the A& partnership, A##ens capita# is 120,000 and &anie#s is 20,000 and the! share income in a :1 ratio, respecti/e#!. he! decide to admit &a/id to the p artnership. ?ach o the o##o*ing estions is independent o the others.
1. 6eer to the inormation pro/ided abo/e. 7hat amont *i## &a/id ha/e to in/est to gi/e him one-ith percent interest in the capita# o the partnership i n o good*i## or bons is recorded+ A. 80,000 $. 8,000 C. 50,000 &. 25,000
'. 6eer to the inormation pro/ided abo/e. Assme that &a/id in/ests 50,000 or a oneorth interest. ood*i## is to be recorded. he Borna# to record &a/ids admission into the partnership *i## inc#de: A. a credit to cash or 50,000. $. a debit to good*i## or 9,500. C. a credit to &a/id, Capita# or 80,000. &. a credit to &a/id, Capita# or 50,000.
. 6eer to the inormation pro/ided abo/e. A##en and &anie# agree that some o the in/entor! is obso#ete. he in/entor! accont is decreased beore &a/id is admitted. &a/id in/ests 20,000 or a one-ith interest. 7hat is the amont o in/entor! *ritten do*n+ A. 2,000 $. '0,000 C. 15,000 &. 10,000
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
2. 6eer to the inormation pro/ided abo/e. A##en and &anie# agree that some o the in/entor! is obso#ete. he in/entor! accont is decreased beore &a/id is admitted. &a/id in/ests 20,000 or a one-ith interest. 7hat are the capita# ba#ances o A##en and &anie# ater &a/id is admitted into the partnership+
A. Option A $. Option $ C. Option C &. Option &
5. 6eer to the inormation pro/ided abo/e. &a/id direct#! prchases a one-ith interest b! pa!ing A##en 2,000 and &anie# 10,000. he #and accont is increased beore &a/id is admitted. $! *hat amont is the #and accont increased+ A. 20,000 $. 10,000 C. 8,000 &. '0,000
8. 6eer to the inormation pro/ided abo/e. &a/id direct#! prchases a one-ith interest b! pa!ing A##en 2,000 and &anie# 10,000. he #and accont is increased beore &a/id is admitted. 7hat are the capita# ba#ances o A##en and &anie# ater &a/id is admitted into the partnership+
A. Option A $. Option $ C. Option C &. Option &
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
9. 6eer to the inormation pro/ided abo/e. &a/id in/ests 20,000 or a one-ith interest in the tota# capita# o ''0,000. he Borna# to record &a/ids admission into the partnership *i## inc#de: A. a credit to Cash or 20,000. $. a debit to A##en, Capita# or ,000. C. a credit to &a/id, Capita# or 20,000. &. a credit to &anie#, Capita# or 1,000.
<. 6eer to the inormation pro/ided abo/e. &a/id in/ests 20,000 or a one-ith interest in the tota# capita# o ''0,000. 7hat are the capita# ba#ances o A##en and &anie# ater &a/id is admitted into the partnership+
A. Option A $. Option $ C. Option C &. Option &
;. 6eer to the inormation pro/ided abo/e. &a/id in/ests 50,000 or a one-ith interest. 7hat amont o good*i## *i## be recorded+ A. '0,000 $. 2,000 C. 20,000 &. 15,000
20. 7hich o the o##o*ing obser/ations is tre o an 4 corporation+ A. It e#ects to be ta"ed in the same manner as a corporation. $. It does not ha/e the brden o dob#e ta"ation o corporate income. C. Its shareho#ders ha/e persona# #iabi#it! or the corporations ob#igations. &. Its primar! income sorce sho#d be passi/e in/estments.
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
21. A #imited #iabi#it! compan! (>>C): I. is go/erned b! the #a*s o the state in *hich it is ormed. II. pro/ides #iabi#it! protection to its in/estors. III. does not oer pass-throgh ta"ation beneits o partnerships. A. $oth I and III. $. III C. $oth I and II &. I, II, and II
2'. I A is the tota# capita# o a partnership beore the admission o a ne* partner, $ is the tota# capita# o the partnership ater the admission o the ne* partner, C is the amont o the ne* partners in/estment, and & is the amont o capita# credited to the ne* partner, then there is: A. good*i## to the ne* partner i $ (A G C) and & D C. $. good*i## to the o#d partners i $ E A G C and & C. C. a bons to the ne* partner i $ E A G C and & C. &. neither bons nor good*i## i $ (A G C) and & C.
2. he terms o a partnership agreement pro/ide that one o the partners is to recei/e a sa#ar! a##o*ance o 0,000, p#s a bons o '0 percent o income ater dedction o the bons and the sa#ar! a##o*ance. I income is 150,000, the bons sho#d be: A. 1<,000 $. '0,000 C. '2,000 &. 0,000
22. he partnership o H and shares proits and #osses in the ratio o 80 percent to H and 20 percent to . For the !ear '00<, partnership net income *as dob#e Hs *ithdra*a#s. Assme Hs beginning capita# ba#ance *as <0,000, and ending capita# ba#ance (ater c#osing) *as 120,000. Partnership net income or the !ear *as: A. 1'0,000. $. 00,000. C. 500,000. &. 800,000.
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
25. 4he, a partner in the Financia# $roers Partnership, has a 0 percent share in partnership proits and #osses. 4hes capita# accont had a net decrease o 100,000 dring '00<. &ring '00<, 4he *ithdre* '20,000 as *ithdra*a#s and contribted eipment /a#ed at 50,000 to the partnership. 7hat *as the net income o the Financia# $roers Partnership or '00<+ A. 8,2 $. 288,888 C. 00,000 &. 1;0,000
28. ranserab#e interest o a partner inc#des a## o the o##o*ing e"cept: A. the partners share o the proits and #osses o the partnership. $. the right to recei/e distribtions. C. the right to recei/e an! #iidating distribtion. &. the athorit! to transact an! o the partnerships bsiness operations.
Essay Questions
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
29. %et income or >e/in-om partnership or '00; *as 1'5,000. >e/in and om ha/e agreed to distribte partnership net income according to the o##o*ing p#an:
Additiona# Inormation or '00; o##o*s: 1. >e/in began the !ear *ith a capita# ba#ance o 95,000. '. om began the !ear *ith a capita# ba#ance o 100,000. . On March 1, >e/in in/ested an additiona# '5,000 into the partnership. 2. On October 1, om in/ested an additiona# '0,000 into the partnership. 5. hroghot '00;, each partner *ithdre* '00 per *ee in anticipation o partnership net income. he partners agreed that these *ithdra*a#s are not to be inc#ded in the comptation o a/erage capita# ba#ances or prposes o income distribtions. 6eired: a. Prepare a sched#e that disc#oses the distribtion o partnership net income or '00;. 4ho* spporting comptations in good orm. b. Prepare the statement o partners capita# at &ecember 1, '00;. c. @o* *o#d !or ans*er to part a change i a## o the pro/isions o the income distribtion p#an *ere the same e"cept that the sa#aries *ere 25,000 to >e/in and 80,000 to 3ac+
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
2<. Pa# and 6a! se## msica# instrments throgh their partnership. o bring in additiona# nds and e"pertise, the! decide to admit 3anet to the partnership. Pa#s capita# is 200, 000, 6a!s capita# is '00,000, and the! share income in a ratio o 9:, respecti/e#!. 6eired 6ecord 3anets admission or each o the o##o*ing independent sitations: a) 3anet in/ests 1<0,000 or a one-orth interest. ood*i## is to be recorded. b) Pa# and 6a! agree that some o the in/entor! is obso#ete. he in/entor! accont is decreased beore 3anet is admitted. 3anet in/ests 1;0,000 or a one-orth interest.
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
2;. *o so#e proprietors, > and M, agreed to orm a partnership on 3anar! 1, '00;. he tria# ba#ance or each proprietorship is sho*n be#o* as o 3anar! 1, '00;.
he >M partnership *i## tae o/er the assets and assme the #iabi#ities o the proprietors as o 3anar! 1, '00;. 6eired: a) Prepare a ba#ance sheet, or inancia# acconting prposes, or the >M partnership as o 3anar! 1, '00;. b) In addition, assme that M agreed to recognie the good*i## generated b! >s bsiness. According#!, M agreed to recognie an amont or >s good*i## sch that >s capita# ea##ed Ms capita# on 3anar! 1, '00;. i/en this a#ternati/e, ho* does the ba#ance sheet prepared or reirement A change+
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
50. he P= partnership has the o##o*ing p#an or the distribtion o partnership net income (#oss):
6eired: Ca#c#ate the distribtion o partnership net income (#oss) or each independent sitation be#o* (or each sitation, assme the a/erage capita# ba#ance o P is 120,000 and o = is '20,000). 1. Partnership net income is 80,000. '. Partnership net income is '20,000. . Partnership net #oss is 20,000.
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
51. Mi##er and &a/is, partners in a cons#ting bsiness, share proits and #osses in the ratio o :', respecti/e#!. Prior to recording the admission o 4ha* as a ne* partner, Mi##er has a capita# ba#ance o <0,000, and &a/is has a capita# ba#ance o 20,000. 6eired: For each o the o##o*ing independent cases, prepare the Borna# entr! that *as made to record the admission o 4ha* into the partnership. 1) 4ha* prchased '0 percent o the respecti/e capita# ba#ances o Mi##er and &a/is, pa!ing '0,000 cash direct#! to each o them. ') 4ha* in/ested 0,000 cash in the partnership or a '0 percent o*nership interest. ota# capita# ater recording his admission *as 150,000. ) 4ha* in/ested 20,000 cash into the partnership or a '0 percent o*nership interest. ota# capita# ater recording his admission *as 180,000. 2) 4ha* in/ested 50,000 into the partnership or a '0 percent interest. ood*i## is to be recognied.
5'. In the 3A7 partnership, 3anes capita# is 100,000, Annes is <0,000, and 7i##iams is 95,000. he! share income in a :':1 ratio, respecti/e#!. 7i##iam is retiring rom the partnership. 6eired Prepare Borna# entries to record 7i##iams *ithdra*a# according to each o the o##o*ing independent assmptions: a. 7i##iam is paid <0,000, and no good*i## is recorded. b. 7i##iam is paid <5,000, and on#! his share o the good*i## is recorded. c. 7i##iam is paid 9<,000, and a## imp#ied good*i## is recorded.
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
5. App#e and $ett! are p#anning on beginning a ne* bsiness. he! p#an on orming a partnership. App#e *i## contribte 00,000 and *i## not be *oring. $ett! *i## be *oring ## time. he! p#an on sp#itting proits ea##!. he! approach !o, as an acconting maBor, to conirm their thoghts. 7hat do !o recommend+
52. he A$C partnership had net income o 100,000 or '00;. he! a##ocate proits and #osses in the ratio 5::'. Ater c#osing the 1'J1J'00; boos the! disco/ered that 0 ,000 *as spent on a piece o #and in &ecember '00; and *as e"pensed. 7hat sho#d happen+
Chapter 15 Partnerships: Formation, Operation, and Changes in Membership Ans*er Ke!
Multiple Choice Questions
1. A partnership is a(n): I. acconting entit!. II. ta"ab#e entit!. A I on#! $. II on#! C. %either I nor II &. $oth I and II
AACSB: Reflective Thinking AICPA: Decision Making
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
'. A partners ta" basis in a partnership is comprised o *hich o the o##o*ing items+ I. he partners ta" basis o assets contribted to the partnership. II. he amont o the partners #iabi#ities assmed b! the other partners. III. he partners share o other partners #iabi#ities assmed b! the partnership. A. I p#s II mins III $. I p#s II p#s III C I mins II p#s III &. I mins II mins III
AACSB: Reflective Thinking AICPA: Decision Making
In the A$C partnership (to *hich &anie# sees admittance), the capita# ba#ances o A#bert, $ert, and Conne##, *ho share income in the ratio o 5::' are:
. $ased on the preceding inormation, i no good*i## or bons is recorded, ho* mch sho#d &anie# in/est or a '0 percent interest+ A. 200,000 $. '00,000 C. 00,000 ! '50,000
AACSB: Analytic AICPA: Decision Making
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
2. $ased on the preceding inormation, *hat amont o good*i## *i## be recorded i &anie# in/ests 250,000 or a one-third interest+ A. 0 $. 10,000 C 50,000 &. 100,000
AACSB: Analytic AICPA: Decision Making
3ones and 4mith ormed a partnership *ith each partner contribting the o##o*ing items:
Assme that or ta" prposes 3ones and 4mith agree to share ea##! in the #iabi#ities assmed b! the 3ones and 4mith partnership.
5. 6eer to the abo/e inormation. 7hat is each partners ta" basis in the 3ones and 4mith partnership+
A Option A $. Option $ C. Option C &. Option &
AACSB: Analytic AICPA: Measurement
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
8. 6eer to the abo/e inormation. 7hat is the ba#ance in each partners capita# acco nt or inancia# acconting prposes+
A. Option A $. Option $ C Option C &. Option &
AACSB: Analytic AICPA: Measurement
9. riin and 6hodes ormed a partnership on 3anar! 1, '00;. riin contribted cash o 1'0,000 and 6hodes contribted #and *ith a air /a#e o 180,000. he partnership assmed the mortgage on the #and *hich amonted to 20,000 on 3anar! 1. 6hodes origina##! paid ;0,000 or the #and. On 3#! 1, '00;, the partnership so#d the #and or 1;0,000. Assming riin and 6hodes share proits and #osses ea##!, ho* mch o the gain rom sa#e o #and sho#d be credited to riin or inancia# acconting prposes+ A. 0 " 15,000 C. 5,000 &. 25,000
AACSB: Analytic AICPA: Decision Making
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
<. 7hich o the o##o*ing acconts co#d be ond in the genera# #edger o a partnership+
A. Option A $. Option $ C. Option C ! Option &
AACSB: Reflective Thinking AICPA: Decision Making
;. 7hich o the o##o*ing acconts co#d be ond in the P= partnerships genera# #edger+ I. &e rom P II. P, &ra*ing III. >oan Pa!ab#e to = A. I, II $. I, III C. II, III ! I, II, and III
AACSB: Reflective Thinking AICPA: Decision Making
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Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
10. he &?F partnership reported net income o 10,000 or the !ear ended &ecember 1, '00<. According to the partnership agreement, partnership proits and #osses are to be distribted as o##o*s:
@o* sho#d partnership net income or '00< be a##ocated to &, ?, and F+
A. Option A " Option $ C. Option C &. Option &
AACSB: Analytic AICPA: Measurement
15-'8
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
11. he 3P$ partnership reported net income o 180,000 or the !ear ended &ecember 1, '00<. According to the partnership agreement, partnership proits and #osses are to be distribted as o##o*s:
@o* sho#d partnership net income or '00< be a##ocated to 3, P, and $+
A. Option A $. Option $ C Option C &. Option &
AACSB: Analytic AICPA: Measurement
he AP$ partnership agreement speciies that partnership net income be a##ocated as o##o*s:
A/erage capita# ba#ances or the crrent !ear *ere 50,000 or A, 0,000 or P, and '0,000 or $.
15-'9
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
1'. 6eer to the inormation gi/en. Assming a crrent !ear net income o 150,000, *hat amont sho#d be a##ocated to each partner+
A. Option A " Option $ C. Option C &. Option &
AACSB: Analytic AICPA: Measurement
1. 6eer to the inormation gi/en. Assming a crrent !ear net income o 50,000, *hat amont sho#d be a##ocated to each partner+
A. Option A $. Option $ C Option C &. Option &
AACSB: Analytic AICPA: Measurement
15-'<
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
12. 6& ormed a partnership on Febrar! 10, '00;. 6 contribted cash o 150,000, *hi#e & contribted in/entor! *ith a air /a#e o 1'0,000. &e to 6s e"pertise in se##ing, & agreed that 6 sho#d ha/e 80 percent o the tota# capita# o the partnership. 6 and & agreed to recognie good*i##. 7hat is the tota# capita# o the 6& partnership and the capita# ba#ance o 6 ater the good*i## is recognied+
A. Option A $. Option $ C Option C &. Option &
AACSB: Analytic AICPA: Measurement
15. A Boint /entre ma! be organied as a: I. Partnership. II. Corporation. III. ndi/ided interest. A. I on#! $. II on#! C. I or III on#! ! I, II, or III
AACSB: Analytic AICPA: Measurement
15-';
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
18. 6eer to the abo/e inormation. 7hich statement be#o* is correct i a ne* partner recei/es a bons pon contribting assets into the partnership+ A. $ D A and & E C - A " $ A and & E C G A C. A E $ and A E & G C &. $ A and C E & G A
AACSB: Analytic AICPA: Decision Making
19. 6eer to the abo/e inormation. 7hich statement be#o* is correct i the o#d partners recei/e a bons pon the contribtion o assets into the partnership b! a ne* partner+ A. $ D A and & E C - A $. $ G A and & C G A C $ D A and & E C G A &. $ A and & E C G A
AACSB: Analytic AICPA: Decision Making
1<. 6eer to the abo/e inormation. 7hich statement be#o* is correct i good*i## o the o#d partners is recognied pon the contribtion o assets into the partnership b! a ne* partner+ A. $ E A and & D C G A " $ E A and & C G A C. $ D A and & E C G A &. $ A and & D C G A
AACSB: Analytic AICPA: Decision Making
15-0
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
1;. 6eer to the abo/e inormation. 7hich statement be#o* is correct i a ne* partner prchases an interest in capita# direct#! rom the o#d partners+ A. C D & " C E & C. C E & and $ E A &. C D & and $ E A
AACSB: Analytic AICPA: Decision Making
'0. 6eer to the abo/e inormation. 7hich statement be#o* is correct i a ne* partners good*i## is recognied pon contribting assets into the partnership+ A. $ E A and & C G A $. $ D A and & D C G A C. $ A and & E C G A ! $ A and & C G A
AACSB: Analytic AICPA: Decision Making
'1. 7hen a partnership is ormed, noncash assets contribted b! partners sho#d be recorded: I. at their respecti/e boo /a#es or income ta" prposes. II. at their respecti/e air /a#es or inancia# acconting prposes. A. I on#! $. II on#! C $oth I and II &. %either I nor II
AACSB: Reflective Thinking AICPA: Decision Making
15-1
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
''. 7hen a ne* partner is admitted into a partnership and the ne* partner recei/es a capita# credit #ess than the tangib#e assets contribted, *hich o the o##o*ing e"p#ains the dierence+ I. he ne* partners good*i## has been recognied. II. he o#d partners recei/ed a bons rom the ne* partner. A. I on#! " II on#! C. ?ither I or II &. %either I nor II
AACSB: Reflective Thinking AICPA: Decision Making
'. 7hen a ne* partner is admitted into a partnership and the ne* partner recei/es a capita# credit greater than the tangib#e assets contribted, *hich o the o##o*ing e"p#ains the dierence+ I. he o#d partners good*i## is being recognied. II. he ne* partners good*i## is being recognied. A. I on#! " II on#! C. ?ither I or II &. $oth I and II
AACSB: Reflective Thinking AICPA: Decision Making
'2. 7hen a ne* partner is admitted into a partnership and the capita# o the o#d partners decreases, *hich o the o##o*ing e"p#ains the reason or the decrease+ I. nder/a#ed #iabi#ities *ere *ritten p to their air /a#es. II. nder/a#ed assets *ere *ritten p to their air /a#es. A I on#! $. II on#! C. $oth I and II &. %either I nor II
AACSB: Reflective Thinking AICPA: Decision Making
15-'
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
'5. 7hen a partner retires rom a partnership and the retiring partner is paid more than the capita# ba#ance in her accont, *hich o the o##o*ing e"p#ains the dierence+ I. he retiring partner is recei/ing a bons rom the other partners. II. he retiring partners good*i## is being recognied. A. I on#! $. II on#! C ?ither I or II &. %either I nor II
AACSB: Reflective Thinking AICPA: Decision Making
'8. 7hen the o#d partners recei/e a bons pon admission o a ne* partner into a partnership, the bons is a##ocated to: I. a## the partners in their proit and #oss sharing ratio. II. the e"isting partners in their proit and #oss sharing ratio. A. I on#! " II on#! C. ?ither I or II &. %either I nor II
AACSB: Reflective Thinking AICPA: Decision Making
'9. 7hen a ne* partner is admitted into a partnership and the o#d partners good*i## is recognied, the good*i## is a##ocated to: I. a## the partners in their proit-and-#oss-sharing ratio. II. the o#d partners in their proit and #oss sharing ratio. A. I on#! " II on#! C. ?ither I or II &. %either I nor II
AACSB: Reflective Thinking AICPA: Decision Making
15-
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
In the 64 partnership, 6ons capita# is <0,000, 4te##as is 95,000, and ian!s is 50,000. he! share income in a :':1 ratio, respecti/e#!. ian! is retiring rom the partnership. ?ach o the o##o*ing estions is independent o the others.
'<. 6eer to the abo/e inormation. ian! is paid 80,000, and no good*i## is recorded. In the Borna# entr! to record ian!s *ithdra*a#: A. ian!, Capita# *i## be credited or 80,000. $. 6on, Capita# *i## be debited or 5,000. C 4te##a, Capita# *i## be debited or 2,000. &. Cash *i## be debited or 80,000.
AACSB: Analytic AICPA: Measurement
';. 6eer to the abo/e inormation. ian! is paid 80,000, and no good*i## is recorded. 7hat is the 6ons capita# ba#ance ater ian! *ithdra*s rom the partnership+ A 92,000 $. 91,000 C. 95,000 &. <8,000
AACSB: Analytic AICPA: Measurement
0. 6eer to the abo/e inormation. ian! is paid 58,000, and a## imp#ied good*i## is recorded. 7hat is the tota# amont o good*i## recorded+ A. 0 $. 8,000 C. 0,000 ! 8,000
AACSB: Analytic AICPA: Measurement
15-2
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
In the A& partnership, A##ens capita# is 120,000 and &anie#s is 20,000 and the! share income in a :1 ratio, respecti/e#!. he! decide to admit &a/id to the p artnership. ?ach o the o##o*ing estions is independent o the others.
1. 6eer to the inormation pro/ided abo/e. 7hat amont *i## &a/id ha/e to in/est to gi/e him one-ith percent interest in the capita# o the partnership i n o good*i## or bons is recorded+ A. 80,000 $. 8,000 C. 50,000 ! 25,000
AACSB: Analytic AICPA: Measurement
'. 6eer to the inormation pro/ided abo/e. Assme that &a/id in/ests 50,000 or a oneorth interest. ood*i## is to be recorded. he Borna# to record &a/ids admission into the partnership *i## inc#de: A. a credit to cash or 50,000. $. a debit to good*i## or 9,500. C a credit to &a/id, Capita# or 80,000. &. a credit to &a/id, Capita# or 50,000.
AACSB: Analytic AICPA: Measurement
. 6eer to the inormation pro/ided abo/e. A##en and &anie# agree that some o the in/entor! is obso#ete. he in/entor! accont is decreased beore &a/id is admitted. &a/id in/ests 20,000 or a one-ith interest. 7hat is the amont o in/entor! *ritten do*n+ A. 2,000 " '0,000 C. 15,000 &. 10,000
AACSB: Analytic AICPA: Measurement
15-5
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
2. 6eer to the inormation pro/ided abo/e. A##en and &anie# agree that some o the in/entor! is obso#ete. he in/entor! accont is decreased beore &a/id is admitted. &a/id in/ests 20,000 or a one-ith interest. 7hat are the capita# ba#ances o A##en and &anie# ater &a/id is admitted into the partnership+
A. Option A " Option $ C. Option C &. Option &
AACSB: Analytic AICPA: Measurement
5. 6eer to the inormation pro/ided abo/e. &a/id direct#! prchases a one-ith interest b! pa!ing A##en 2,000 and &anie# 10,000. he #and accont is increased beore &a/id is admitted. $! *hat amont is the #and accont increased+ A 20,000 $. 10,000 C. 8,000 &. '0,000
AACSB: Analytic AICPA: Measurement
15-8
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
8. 6eer to the inormation pro/ided abo/e. &a/id direct#! prchases a one-ith interest b! pa!ing A##en 2,000 and &anie# 10,000. he #and accont is increased beore &a/id is admitted. 7hat are the capita# ba#ances o A##en and &anie# ater &a/id is admitted into the partnership+
A. Option A $. Option $ C Option C &. Option &
AACSB: Analytic AICPA: Measurement
9. 6eer to the inormation pro/ided abo/e. &a/id in/ests 20,000 or a one-ith interest in the tota# capita# o ''0,000. he Borna# to record &a/ids admission into the partnership *i## inc#de: A. a credit to Cash or 20,000. " a debit to A##en, Capita# or ,000. C. a credit to &a/id, Capita# or 20,000. &. a credit to &anie#, Capita# or 1,000.
AACSB: Analytic AICPA: Measurement
15-9
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
<. 6eer to the inormation pro/ided abo/e. &a/id in/ests 20,000 or a one-ith interest in the tota# capita# o ''0,000. 7hat are the capita# ba#ances o A##en and &anie# ater &a/id is admitted into the partnership+
A. Option A $. Option $ C. Option C ! Option &
AACSB: Analytic AICPA: Measurement
;. 6eer to the inormation pro/ided abo/e. &a/id in/ests 50,000 or a one-ith interest. 7hat amont o good*i## *i## be recorded+ A '0,000 $. 2,000 C. 20,000 &. 15,000
AACSB: Analytic AICPA: Measurement
20. 7hich o the o##o*ing obser/ations is tre o an 4 corporation+ A. It e#ects to be ta"ed in the same manner as a corporation. " It does not ha/e the brden o dob#e ta"ation o corporate income. C. Its shareho#ders ha/e persona# #iabi#it! or the corporations ob#igations. &. Its primar! income sorce sho#d be passi/e in/estments.
AACSB: Reflective Thinking AICPA: Decision Making
15-<
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
21. A #imited #iabi#it! compan! (>>C): I. is go/erned b! the #a*s o the state in *hich it is ormed. II. pro/ides #iabi#it! protection to its in/estors. III. does not oer pass-throgh ta"ation beneits o partnerships. A. $oth I and III. $. III C $oth I and II &. I, II, and II
AACSB: Reflective Thinking AICPA: Decision Making
2'. I A is the tota# capita# o a partnership beore the admission o a ne* partner, $ is the tota# capita# o the partnership ater the admission o the ne* partner, C is the amont o the ne* partners in/estment, and & is the amont o capita# credited to the ne* partner, then there is: A. good*i## to the ne* partner i $ (A G C) and & D C. $. good*i## to the o#d partners i $ E A G C and & C. C a bons to the ne* partner i $ E A G C and & C. &. neither bons nor good*i## i $ (A G C) and & C.
AACSB: Reflective Thinking AICPA: Decision Making
2. he terms o a partnership agreement pro/ide that one o the partners is to recei/e a sa#ar! a##o*ance o 0,000, p#s a bons o '0 percent o income ater dedction o the bons and the sa#ar! a##o*ance. I income is 150,000, the bons sho#d be: A. 1<,000 " '0,000 C. '2,000 &. 0,000
AACSB: Analytic AICPA: Measurement
15-;
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
22. he partnership o H and shares proits and #osses in the ratio o 80 percent to H and 20 percent to . For the !ear '00<, partnership net income *as dob#e Hs *ithdra*a#s. Assme Hs beginning capita# ba#ance *as <0,000, and ending capita# ba#ance (ater c#osing) *as 120,000. Partnership net income or the !ear *as: A. 1'0,000. $. 00,000. C. 500,000. ! 800,000.
AACSB: Analytic AICPA: Measurement
25. 4he, a partner in the Financia# $roers Partnership, has a 0 percent share in partnership proits and #osses. 4hes capita# accont had a net decrease o 100,000 dring '00<. &ring '00<, 4he *ithdre* '20,000 as *ithdra*a#s and contribted eipment /a#ed at 50,000 to the partnership. 7hat *as the net income o the Financia# $roers Partnership or '00<+ A. 8,2 $. 288,888 C 00,000 &. 1;0,000
AACSB: Analytic AICPA: Measurement
28. ranserab#e interest o a partner inc#des a## o the o##o*ing e"cept: A. the partners share o the proits and #osses o the partnership. $. the right to recei/e distribtions. C. the right to recei/e an! #iidating distribtion. ! the athorit! to transact an! o the partnerships bsiness operations.
AACSB: Reflective Thinking AICPA: Decision Making
Essay Questions
15-20
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
29. %et income or >e/in-om partnership or '00; *as 1'5,000. >e/in and om ha/e agreed to distribte partnership net income according to the o##o*ing p#an:
Additiona# Inormation or '00; o##o*s: 1. >e/in began the !ear *ith a capita# ba#ance o 95,000. '. om began the !ear *ith a capita# ba#ance o 100,000. . On March 1, >e/in in/ested an additiona# '5,000 into the partnership. 2. On October 1, om in/ested an additiona# '0,000 into the partnership. 5. hroghot '00;, each partner *ithdre* '00 per *ee in anticipation o partnership net income. he partners agreed that these *ithdra*a#s are not to be inc#ded in the comptation o a/erage capita# ba#ances or prposes o income distribtions. 6eired: a. Prepare a sched#e that disc#oses the distribtion o partnership net income or '00;. 4ho* spporting comptations in good orm. b. Prepare the statement o partners capita# at &ecember 1, '00;. c. @o* *o#d !or ans*er to part a change i a## o the pro/isions o the income distribtion p#an *ere the same e"cept that the sa#aries *ere 25,000 to >e/in and 80,000 to 3ac+
15-21
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
a)
15-2'
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
AACSB: Analytic AICPA: Measurement
15-2
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
2<. Pa# and 6a! se## msica# instrments throgh their partnership. o bring in additiona# nds and e"pertise, the! decide to admit 3anet to the partnership. Pa#s capita# is 200, 000, 6a!s capita# is '00,000, and the! share income in a ratio o 9:, respecti/e#!. 6eired 6ecord 3anets admission or each o the o##o*ing independent sitations: a) 3anet in/ests 1<0,000 or a one-orth interest. ood*i## is to be recorded. b) Pa# and 6a! agree that some o the in/entor! is obso#ete. he in/entor! accont is decreased beore 3anet is admitted. 3anet in/ests 1;0,000 or a one-orth interest.
15-22
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
15-25
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
AACSB: Analytic AICPA: Measurement
15-28
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
2;. *o so#e proprietors, > and M, agreed to orm a partnership on 3anar! 1, '00;. he tria# ba#ance or each proprietorship is sho*n be#o* as o 3anar! 1, '00;.
he >M partnership *i## tae o/er the assets and assme the #iabi#ities o the proprietors as o 3anar! 1, '00;. 6eired: a) Prepare a ba#ance sheet, or inancia# acconting prposes, or the >M partnership as o 3anar! 1, '00;. b) In addition, assme that M agreed to recognie the good*i## generated b! >s bsiness. According#!, M agreed to recognie an amont or >s good*i## sch that >s capita# ea##ed Ms capita# on 3anar! 1, '00;. i/en this a#ternati/e, ho* does the ba#ance sheet prepared or reirement A change+
15-29
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
a)
b) Assets change de to the addition o good*i## o 2,000. ota# assets are no* 1,1'<,000 (1,0;2,000 G 2,000 good*i##). >, Capita# and M, Capita# are each ';2,000 i >s good*i## is recognied. ota# capita# is 5<<,000, and tota# #iabi#ities and capita# amont to 1,1'<,000.
AACSB: Analytic AICPA: Measurement
15-2<
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
50. he P= partnership has the o##o*ing p#an or the distribtion o partnership net income (#oss):
6eired: Ca#c#ate the distribtion o partnership net income (#oss) or each independent sitation be#o* (or each sitation, assme the a/erage capita# ba#ance o P is 120,000 and o = is '20,000). 1. Partnership net income is 80,000. '. Partnership net income is '20,000. . Partnership net #oss is 20,000.
15-2;
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
4itation 1: %et income is 80,000
4itation ': %et income is '20,000
4itation : %et #oss is 20,000
AACSB: Analytic AICPA: Measurement
15-50
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
51. Mi##er and &a/is, partners in a cons#ting bsiness, share proits and #osses in the ratio o :', respecti/e#!. Prior to recording the admission o 4ha* as a ne* partner, Mi##er has a capita# ba#ance o <0,000, and &a/is has a capita# ba#ance o 20,000. 6eired: For each o the o##o*ing independent cases, prepare the Borna# entr! that *as made to record the admission o 4ha* into the partnership. 1) 4ha* prchased '0 percent o the respecti/e capita# ba#ances o Mi##er and &a/is, pa!ing '0,000 cash direct#! to each o them. ') 4ha* in/ested 0,000 cash in the partnership or a '0 percent o*nership interest. ota# capita# ater recording his admission *as 150,000. ) 4ha* in/ested 20,000 cash into the partnership or a '0 percent o*nership interest. ota# capita# ater recording his admission *as 180,000. 2) 4ha* in/ested 50,000 into the partnership or a '0 percent interest. ood*i## is to be recognied.
AACSB: Analytic AICPA: Measurement
15-51
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
5'. In the 3A7 partnership, 3anes capita# is 100,000, Annes is <0,000, and 7i##iams is 95,000. he! share income in a :':1 ratio, respecti/e#!. 7i##iam is retiring rom the partnership. 6eired Prepare Borna# entries to record 7i##iams *ithdra*a# according to each o the o##o*ing independent assmptions: a. 7i##iam is paid <0,000, and no good*i## is recorded. b. 7i##iam is paid <5,000, and on#! his share o the good*i## is recorded. c. 7i##iam is paid 9<,000, and a## imp#ied good*i## is recorded.
15-5'
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
15-5
Chapter 15 - Partnerships: Formation, Operation, and Changes in Membership
AACSB: Analytic AICPA: Measurement
5. App#e and $ett! are p#anning on beginning a ne* bsiness. he! p#an on orming a partnership. App#e *i## contribte 00,000 and *i## not be *oring. $ett! *i## be *oring ## time. he! p#an on sp#itting proits ea##!. he! approach !o, as an acconting maBor, to conirm their thoghts. 7hat do !o recommend+ 4tdents sho#d recognie that partners can agree to an! orm o proit a##ocation. @o*e/er, since one partner, App#e, has contribted mone! and $ett! hasnt, the! might *ant to consider some orm o interest on the capita# ba#ance. A#so, since one partner, $ett!, is *oring ## time, App#e is not, the! might *ant to consider ha/ing a sa#ar! or a bons opportnit! or App#e.
AACSB: Communication AICPA: Critical Thinking
15-52
