AFAR (average)

Which of the following statements is true concerning the treatment of salaries in partnership accounting?

• Partner salaries may be used to allocate profits and losses; they are not considered expenses of the partnership

• Partner salaries are equal to the annual partner draw.

• The salary of a partner is treated in the same manner as salaries of corporate employees.

• Partner salaries are directly closed to the capital account.

Polk issues common stock to acquire all the assets of the Sam Company on January 1, 20X5. There is a contingent share agreement, which states that if the income of the Sam Division exceeds a certain level during 20X5 and 20X6, additional shares will be issued on January 1, 20X7. The impact of issuing the additional shares is to

• increase the price assigned to fixed assets.

• have no effect on asset values, but to reassign the amounts assigned to equity accounts.

• reduce retained earnings.

• record additional goodwill.

Orbit Inc. purchased Planet Co. in 20X3. At that time an existing patent was not recorded as a separately identified intangible asset. At the end of fiscal year 20X5, the patent is valued at $15,000, and goodwill has a book value of $100,000. How should intangible assets be reported at the beginning of fiscal year 20X6?

• Goodwill $100,000 Patent $0

• Goodwill $115,000 Patent $0

• Goodwill $100,000 Patent $15,000

• Goodwill $85,000 Patent $15,000

4. FASB favors consolidation of

two entities when

• one acquires less than 20% equity

  ownership of the other.

• one company’s ownership interest in another gives it control on the acquired company, yet the acquiring company does not have a majority ownership in the acquired. Typically, this is in the 20%-50% interest range.

• one acquires two thirds equity

  ownership in the other.

• one gains control over the entity irrespective of the equity percentage owned.

5. Raphael Company paid $2,000,000 for the net assets of Paris Corporation and Paris was then dissolved. Paris had no liabilities. The fair values of Paris’ assets were $2,500,000. Paris’s only non-current assets were land and equipment with fair values of $160,000 and $640,000, respectively. At what value will the equipment be recorded by Raphael?

• $640,000

• $240,000

• $400,000

• $0

In recording acquisition costs,which of following procedures is correct?

• Registration costs are expensed,and not charged against the fair value of the securities issued.

• Indirect costs are charged against the fair value of the securities issued.

• Consulting fees are expensed.

• None of the above procedures is correct.

7. Under the Uniform Partnership Act, loans made by a partner to the partnership are treated as

• advances to the partnership for which interest shall be paid from the date of the advance.

• advances to the partnership that are carried in the partners' capital accounts.

• Accounts Payable of the partnership for which interest is paid.

• advances to the partnership for which interest does not have to be paid.

The XYZ partnership provides a 10% bonus to Partner Y that is based upon partnership income, after deduction of the bonus. If the partnership's income is $121,000, how much is Partner Y's bonus allocation?

• $11,000

• $11,450

• $11,650

• $12,100

A partnership dissolution differs from a liquidation in that

• payments are made to creditors before partners receive value

• periodic payments to partners are made when cash becomes available

• a partner withdraws from the business and the enterprise continues to function

• full payment is made to all outside creditors before remaining cash is distributed to partners in a final lump sum payment

Partners Acker, Becker & Checker have the following profit and loss agreement:

(1) Acker & Becker receive salaries of $40,000 each

(2) Checker gets a bonus of 10 percent of net income after salaries and bonus (the bonus is zero if salaries exhaust net income)

(3) Remaining profits are shared by Acker, Becker & Checker in the following ratios respectively: 3:4:3. The partnership had a net income of $91,000. How much should be allocated to Checker?

• $3,300

• $10,300

• $1,000

• $4,000