1. Which of the following results in dissolution of a partnership?

a. contribution of additional assets to the partnership by an

existing partner
b. receipt of a draw by an existing partner
c. winding up of the partnership and the distribution of remaining
assets to the partners
d. withdrawal of a partner from a partnership
ANS: D DIF: E OBJ: 1
2. Changes in partnership ownership are presumed to be arm's length
transactions that may require which of the following actions?
a. recognitions of goodwill to existing partners
b. revaluation of existing partnership assets
c. recognition of goodwill or other intangible assets attributable to
the incoming partner
d. all of the above are possible
ANS: D DIF: M OBJ: 1
3. The admission of a new partner under the bonus method will result in a
bonus to
a. the old partners only.
b. the new partner only.
c. either the new partner or the old partners, but not both.
d. none of the above.
ANS: C DIF: E OBJ: 2
4. When a new partner is admitted to a partnership under the goodwill
method, an original partner's capital account may be adjusted for
a. a proportionate share of the incoming partner's investment.
b. his or her share of previously unrecorded intangible assets
traceable to the original partners.
c. his or her share of previously unrecorded intangible assets
traceable to the incoming partner.
d. none of the above.
ANS: B DIF: M OBJ: 1
Chapter 14
14-2
5. Under the bonus method, when a new partner is admitted to the
partnership, the total capital of the new partnership is equal to:
a. the book value of the previous partnership + the fair market value
of the consideration paid to the existing partnership by the
incoming partner
b. the book value of the previous partnership + any necessary asset
write ups from book value to market value + the fair market value
of the consideration paid to the existing partnership by the
incoming partner
c. the book value of the previous partnership - any asset write downs
from book to market value + the fair market value of the
consideration paid to the existing partnership by the incoming
partner
d. the fair market value of the new partnership as implied by the
value of the incoming partner's consideration in exchange for an
ownership percentage in the new partnership
ANS: C DIF: M OBJ: 2
6. If a bonus is traceable to the previous partners rather than an
incoming partner, it is allocated among the partners according to the
a. profit-sharing percentages of the previous partnership.
b. profit-sharing percentages of the new partnership.
c. capital percentages of the previous partners.
d. capital percentages of the new partnership.
ANS: A DIF: E OBJ: 2
7. Which of the following characterizes the bonus method, compared to the
goodwill method, when unrecorded intangibles are traceable to the

previous partners?
a. The intangibles are actually recorded.
b. The legal significance of a change in ownership structure of the
partnership is emphasized.
c. This method generally produces more equitable results if the
former partners do not share profits and losses in the same
relationship to each other as they did before a new partner was
admitted.
d. The market value concept rather than the historical cost concept
is emphasized.
ANS: C DIF: M OBJ: 4
8. The fair market value of a partnership can be implied by
a. adding the incoming partner's market value of consideration to the
book value of the existing partnership.
b. the tax basis of the old partner's assets added to the incoming
partner's consideration.
c. The incoming partner's market value of consideration divided by
the incoming partner's percentage share in profit and loss.
d. The incoming partner's market value of consideration divided by
the incoming partner's percentage ownership share in the new
partnership.
ANS: D DIF: M OBJ: 3
Chapter 14
14-3
Chapter 14
14-4
9. If goodwill is traceable to the previous partners, it is
a. allocated among the previous partners according to their interest
in capital.
b. allocated among the previous partners only if there are no other
assets to be revalued.
c. allocated among the previous partners according to their original
profit-and-loss-sharing percentages.
d. not possible for goodwill to also be traceable to the incoming
partner.
ANS: C DIF: M OBJ: 3
10. If goodwill is traceable only to the previous partners,
a. the book value of the previous partnership plus the investment of
the incoming partner will be greater than the fair market value of
the partnership as suggested by the incoming partner's investment.
b. the new partner's initial capital balance is equal to his or her
investment in the partnership.
c. existing assets of the previous partnership will never be
revalued.
d. none of the above.
ANS: B DIF: M OBJ: 3
11. If goodwill is traceable to the incoming partner, the new partner's
capital balance equals
a. the fair market value of consideration paid by the incoming
partner
b. the book value of the older partnership divided by the existing
partners' ownership percentage in the new partnership minus the
book value of the old partnership.
c. incoming partner's ownership percentage multiplied by the capital
of the new partnership
d. none of the above.
ANS: B DIF: M OBJ: 3
12. Palit buys Quincy's partnership interest in the Q-R-S partnership.
Quincy thus retires, leaving Reale and Susien as Palit's co-partners.
Prior to Palit entering the partnership, Quincy, Reale, and Susien

split profits and losses equally. Palit pays $75,000 for Quincy's
capital which, at the time, totaled $60,000. No revaluation of
partnership assets or liabilities occurs at the time. In recording this
event on the partnership books
a. Goodwill is booked based on the book value/fair value difference.
b. $7,500 bonuses are added to Reale and Susien capital.
c. $5,000 bonuses are added to Quincy, Real, and Susien capital.
d. Palit capital is created in the amount of $60,000.
ANS: D DIF: D OBJ: 2
Chapter 14
14-5
13. If an existing partner withdraws from a partnership,
a. his or her interest may be sold to the partnership or an
individual partner.
b. the consideration received for that partner's interest may suggest
the existence of undervalued existing assets and/or goodwill.
c. either the bonus or the goodwill method may be used to record the
transaction if the partnership acquires the withdrawing partner's
interest.
d. all of the above.
ANS: D DIF: E OBJ: 6
14. If goodwill is suggested by the consideration paid to a withdrawing
partner,
a. only the goodwill traceable to the withdrawing partner may be
recorded.
b. goodwill traceable to the original partnership is allocated among
the partners according to their respective interests in capital.
c. the goodwill traceable to the withdrawing partner represents the
difference between the partner's capital balance and the
consideration he or she receives.
d. none of the above.
ANS: C DIF: M OBJ: 6
15. Callie is admitted to the Adams & Beal Partnership under the bonus
method. Callie contributes cash of $20,000 and non-cash assets with a
market value of $30,000 and book value of $15,000 in exchange for a 20%
ownership interest in the new partnership. Prior to the admission of
Callie, the capital of the existing partnership was $130,000 and an
appraisal showed the partnership net assets were fairly stated.
What will be Callie s initial capital balance?
a. $36,000
b. $50,000
c. $35,000
d. $30,000
ANS: A
New Partnership Capital = 130,000 + 50,000 = 180,000
Callie Capital = 20% x 180,000
DIF: D OBJ: 2
Chapter 14
14-6
16. Callie is admitted to the Adams & Beal Partnership under the bonus
method. Callie contributes cash of $20,000 and non-cash assets with a
market value of $30,000 and book value of $15,000 in exchange for a 20%
ownership interest in the new partnership. Prior to the admission of
Callie, the capital of the existing partnership was $130,000 and an
appraisal showed the partnership net assets were fairly stated. Adams &
Beal shared profits and losses at a ratio of 80/20, respectively.
Which of the following bonus amounts would be recorded?
a. $14,000 to Callie capital
b. $2,800 increase to Beal capital
c. $2,800 decrease to Beal capital

d. $7,000 increase to Adams capital

ANS: B
New Partnership Capital = 130,000 + 50,000 = $180,000
Callie Capital = 20% x 180,000 = 36,000
Bonus = 50,000 - 36,000 = 14,000; 80% increase to Adams capital; 20%
increase to Beal capital
DIF: D OBJ: 2
17. Assume the existing capital of a partnership is $100,000. Two partners
currently own the partnership and split profits 40/60. A new partner is
to be admitted and will contribute net assets with a fair value of
$50,000. An appraisal of existing partnership assets indicates accounts
receivable overstated by $10,000, inventory overstated by $12,000 and
land understated by $25,000. What is the total capital of the new
partnership if the bonus method is being used?
a. $153,000
b. $128,000
c. $175,000
d. $150,000
ANS: B DIF: M OBJ: 2
18. Assume that the capital of an existing partnership is $90,000 and all
existing assets reflect fair market values. If an incoming partner
acquires a 40% interest in the partnership for $55,000, the goodwill
traceable to the incoming partner is
a. $15,000
b. $5,000
c. $3,000
d. $2,000
ANS: B DIF: M OBJ: 3
19. Assume that the capital of an existing partnership is $130,000 and that
existing assets are overvalued by $10,000. If an incoming partner
acquires a 25% interest in the partnership for $37,000, goodwill
traceable to the incoming partner is __________.
a. $1,000
b. $9,667
c. $3,000
d. $5,000
Chapter 14
14-7
ANS: C DIF: M OBJ: 3
20. The following is the priority sequence in which liquidation proceeds
will be distributed for a partnership:
a. partnership drawings, partnership liabilities, partnership loans,
partnership capital balances.
b. partnership liabilities, partnership loans, partnership capital
balances.
c. partnership liabilities, partnership loans, partnership drawings,
partnership capital balances.
d. partnership liabilities, partnership capital balances, partnership
loans.
ANS: B DIF: M OBJ: 7
21. Which of the following statements is correct regarding a partner's
debit capital balances?
a. The partner should make contributions to reduce the debit balance
to whatever extent possible.
b. If contributions are not possible, the other partners with credit
capital balances will be allocated a portion of the debit balance
based on their proportionate profit-and-loss-sharing percentages.
c. Partners who absorb another's debit capital balance have a legal
claim against the deficient partner.
d. All of these statements are correct.

ANS: D DIF: M OBJ: 7

22. The doctrine of marshaling of assets
a. is applicable only if the partnership is insolvent.
b. allows partners to first contribute personal assets to unsatisfied
partnership creditors.
c. is applicable if either the partnership is insolvent or individual
partners are insolvent.
d. provides that when the Uniform Partnership Act is adopted, amounts
owed to personal creditors and to the partnership for debit
capital balances are shared proportionately from the personal
assets of the partners.
ANS: C DIF: E OBJ: 8
23. If a partnership has only non-cash assets, all liabilities have been
properly disbursed, and no additional liquidation expenses are
expected, the maximum potential loss to the partnership in the
liquidation process is:
a. the fair market value of the non-cash assets
b. the book value of the non-cash assets
c. the estimated proceeds from the sale of the assets less the book
value of the non-cash assets
d. none of the above
ANS: B DIF: M OBJ: 10
Chapter 14
14-8
24. Allen, Branden & Caylin are in the process of liquidating their
partnership. They have the following capital balances and profit and
loss percentages:
Capital Balance Profit/Loss %
Allen 5,000 debit 20%
Branden 18,000 credit 50%
Caylin 6,000 credit 30%
The partnership balance sheet shows cash of $5,000, non-cash assets of
$14,000, and no liabilities. Assuming no liquidation expenses, what
safe payment could be made?
a. $5,000 split between Branden & Caylin by a ratio of 5/8 and 3/8,
respectively.
b. $5,000 to Branden only
c. $1,000 to Allen, $2,500 to Branden, and $1,500 to Caylin
d. $18,000 to Branden only
ANS: B DIF: D OBJ: 10
25. A partner's maximum loss absorbable is calculated by
a. dividing the partner's capital balance by his or her profit-andlosssharing percentage.
b. multiplying the partner's capital balance by his or her profitandloss-sharing percentage.
c. multiplying distributable assets by the partner's profit-sharing
percentage.
d. dividing the partner's capital balance by his or her percentage
interest in capital.
ANS: A DIF: M OBJ: 10
26. Under the doctrine of marshaling of assets, unsatisfied partnership
creditors
a. must first proceed against the partner with the largest capital
balance.
b. may attach to the assets of an individual partner before
individual creditors have been satisfied.
c. may proceed against any personally solvent partner.
d. may proceed against any personally solvent partner but only to the
extent of their capital balance in the partnership.
ANS: C DIF: M OBJ: 8

27. Partner T is personally insolvent, owing $400,000. Personal assets will

only bring $150,000 when liquidated. At the same time, T has a credit
capital balance in the partnership of $85,000. The capital amounts of
the other partners total a (credit) balance of $200,000. Under the
doctrine of marshaling of assets, the personal creditors of T can
collect up to __________.
a. $150,000
b. $235,000
c. $400,000
d. $435,000
ANS: B DIF: M OBJ: 8
Chapter 14
14-9
28. Partners Thomas, Adams and Jones have capital balances of $24,000,
$45,000, and $90,000 respectively. They split profits in the ratio of
3:3:4, respectively. Under a predistribution plan, one of the partners
will get the following total amount in liquidation before any other
partners get anything:
a. $22,500
b. $30,000
c. $40,000
d. $75,000
ANS: B DIF: M OBJ: 10
29. Assume that a partnership had assets with a book value of $240,000 and
a market value of $195,000, outside liabilities of $70,000, loans
payable to partner Able of $20,000, and capital balances for partners
Able, Baker, and Chapman of $70,000, $30,000, and $50,000. How much
would Able receive upon liquidation of the partnership assuming profits
and losses are allocated equally?
a. $70,000
b. $90,000
c. $75,000
d. $55,000
ANS: D DIF: M OBJ: 10
30. Assume that a partnership had assets with a book value of $240,000 and
a market value of $195,000, outside liabilities of $70,000, loans
payable to partner Able of $20,000, and capital balances for partners
Able, Baker, and Chapman of $70,000, $30,000, and $50,000. How would
the first $100,000 of available assets be distributed assuming profits
and losses are allocated equally?
a. $70,000 to outside liabilities, $20,000 to Able, and the balance
equally among the partners
b. $70,000 to outside liabilities and $30,000 to Able
c. $70,000 to outside liabilities, $25,000 to Able, and $5,000 to
Chapman
d. $40,000 to Able, $20,000 to Chapman, and the balance equally among
the partners
ANS: B DIF: D OBJ: 10
31. Assume that a partnership had assets with a book value of $240,000 and
a market value of $195,000, outside liabilities of $70,000, loans
payable to partner Able of $20,000, and capital balances for partners
Able, Baker, and Chapman of $70,000, $30,000, and $50,000. If all
outside creditors and loans to partners had been paid, how would the
balance of the assets be distributed assuming that Chapman had already
received assets with a value of $30,000 assuming profits and losses are
allocated equally?
a. Each of the partners would receive $25,000.
b. Each of the partners would receive $40,000.
c. Able: $70,000, Baker: $30,000, Chapman: $20,000
d. Able: $55,000, Baker: $15,000, Chapman: $5,000

Chapter 14
14-10
ANS: D DIF: M OBJ: 9
32. Partners Able, Baker, and Chapman have the following personal assets,
personal liabilities, and partnership capital balances:
Able Baker Chapman
Personal assets......... $30,000 $ 80,000 $60,000
Personal liabilities.... 25,000 50,000 72,000
Capital balances........ 50,000 (32,000) 70,000
Assume profits and losses are allocated equally.
After applying the doctrine of marshaling of assets, the capital
balances for Able, Baker, and Chapman, respectively, would be
a. $50,000, $(2,000), and $58,000.
b. $48,000, 0, and $58,000.
c. $49,000, 0, and $57,000.
d. $34,000, 0, and $54,000.
ANS: C DIF: M OBJ: 8
33. Partners Dalton, Edwards, and Finley have capital balances of $40,000,
90,000 and $30,000, respectively, immediately prior to liquidation.
Total remaining assets have a book value of $160,000, the liabilities
having been paid. Among these remaining assets is a machine with a fair
value of $35,000. The partners split profits and losses equally.
Edwards covets the machine and is willing to accept it for $35,000 in
lieu of cash. The other partners have no designs on specific assets,
only cash in liquidation. How much cash, in addition to the machine,
would be first distributed to Edwards, before any of the other partners
received anything?
a. $15,000
b. $50,000
c. $166,667
d. $300,000
ANS: A DIF: D OBJ: 10