Select the best answer for each of the following items. Questions 1 and 2 are based on the following condensed balance sheet for the partnership of Caine, Davis, and Jones.

The partners share income and loss in the ratio of 5:3:2, respectively.
1. Assume that the assets and liabilities are fairly valued in the balance sheet and the partnership decides to admit Kuman as a new partner with a one-fourth capital interest. No goodwill or bonus is to be recorded. How much should Kuman invest in cash or other assets?
(a) $172,500.
(b) $175,000.
(c) $230,000.
(d) $233,333.

2. Assume that instead of admitting a new partner, the partners decide to liquidate the partnership. If the other assets are sold for $600,000, how much of the available cash should be distributed to Caine?
(a) $170,000.
(b) $150,000.
(c) $190,000.
(d) $300,000.

3. A, B, C, and D are partners sharing profits and losses equally. The partnership is insolvent and is to be liquidated. The status of the partnership and each partner is as follows:

Assuming the Uniform Partnership Act applies, the partnership creditors
(a) Must first seek recovery against C because he is personally solvent and he has a negative capital balance.
(b) Will not be paid in full regardless of how they proceed legally because the partnership assets are less than the claims of the partnership creditors.
(c) Will have to share B’s interest in the partnership on a pro-rata basis with B’s personal creditors.
(d) Have first claim to the partnership assets before any partner’s personal creditors have rights to the partnership assets.

4. If a partner with a debit capital balance during liquidation is insolvent, the following results:
(a) The partner must borrow money to invest in the partnership.
(b) The partnership will give the partner cash to the extent of the partners’ debit balance.
(c) The partner’s debit balance will be allocated to the other partners.
(d) None of the above.

5. If a partnership is undergoing a transformation to a corporation, which of the following is a result?
(a) Assets and liabilities are adjusted to fair value.
(b) The net assets are distributed to the partners in their profit and loss ratio.
(c) The partners receive stock in the new corporation.
(d) Both (a) and (c) arecorrect.

  • CreatedMarch 16, 2015
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