BASIC ACCOUNTING CUP-difficult

Which of the following statements is not true with regards to assigning the carrying value of noncash assets contributed to those assets at the date of a partnership’s formation?

• Use of the noncash asset’s historical cost can result in the misstatement of the partners’ capital accounts

• Assigning the historical cost to noncash assets contributed to a partnership may require the partnership agreement to address profit/loss distribution that will occur when the contributed asset is sold.

• Assigning the historical cost to noncash assets contributed to a partnership will not cause partner taxable income to differ from the partner’s share of partnership income

• All of the above statements are correct

A partnership is formed with three equal partners. However, each partner invests a different amount of net assets. Which of the following statement is true?

• Under the bonus method, all partners will have equal initial capital balances

• Under the goodwill method, each partner will have a different initial capital balance

• Because the investments are unequal, setting each partner’s capital balance equal to the amount invested cannot be used

• The capital balances will be equal no matter which method – bonus, goodwill, or fair value of investment – is used

Which of the following is true regarding the admission of a new partner by purchase of an existing partnership interest?

• Using the transfer of capital interest approach, total partnership capital increases

• Using the transfer of capital interest approach, partnership capital of existing partners does not change.

• Using the revaluation or total adjustments in asset/implied goodwill approach, recognized adjustment in asset/goodwill equals the new partner’s investment divided by his/her capital percentage

• Using the revaluation or total adjustments in asset/implied goodwill approach, the recognized adjustment in asset/goodwill is shared among only the existing partners.

Which of the following is not correct with regard to creditor claims against partnerships and individual partners?

• Partnership creditors can have claims against partnership assets and individual partner assets

• Partnership creditors can have claims against partnership assets and individual partner assets only to the extent that the partner has a deficit capital account balance

• Partner creditors can have claims against individual partner assets and partnership assets to the extent of the partner’s capital account balance

• All of the above

AA and BB are partners who share profits and losses in the ratio of 60%:40%, respectively. AA’s salary is P60,000 and P30,000 for BB. The partners are also paid interest on their average capital balances. In 20X1, AA received P30,000 of interest and BB, P12,000. The profit and loss allocation is determined after deductions for salary and interest payments. If BB’s share in the residual income (income after deducting salary and interest) was P60,000, what was the total partnership income?

• P192,000

• P345,000

• P282,000

• P387,000

Day Company held 10,000 shares of P10 par value as treasury reacquired for P120,000. At year-end, the entity reissued all 10,000 shares for P190,000. What is credited for the excess of the reissue price over the cost of treasury shares?

• Share capital P100,000

• Retained earnings P70,000

• Gain on sale of investment P70,000

• Share premium P70,000

In accounting for shareholder’s equity, the accountant is primarily concerned with which of the following?

• Determining the total amount of shareholder’s equity

• Distinguishing between realized and unrealized revenue

• Recording the source of each of the various elements of shareholder’s equity

• Making sure that the directors do not declare dividends in excess of retained earnings

Which of the following is not one of the basic shareholder’s rights?

• The right to participate in earnings

• The right to maintain one’s proportional interest

• The right to participate in the proceeds of the sale of corporate assets upon liquidation of the corporation

• The right to inspect the accounting records

Contributed capital does not include

• Share premium on ordinary and preference shares

• Preference share capital

• Capital resulting from reissuance of treasury shares at a price in excess of acquisition cost

• Capital accumulated by retention of earnings

The term residual owner means that ordinary shareholders

• Are entitled to a dividend every year in which the entity earns an income

• Have the rights to specific assets of the entity

• Bear the ultimate risks and uncertainties and receive the benefits of ownership

• Can negotiate individual contracts for the entity