1. Ernie and Bert agree to form a partnership. Because the two are great friends, no written partnership agreement is made. Ernie agrees to contribute $100,000 in assets and to devote half of his time to the partnership. Bert is to contribute $40,000 in assets and to devote full time to the partnership. Ernie and Bert will divide any net income or net loss in the following ratio:
a. 5 : 2
b. 1 : 2
c. 1 : 1
d. 1/2 : 1
2. The proper steps to follow when liquidating a partnership are
a. Sell assets, distribute gains or losses to partners based on income sharing ratio, pay the liabilities with the cash from sale of assets, distribute remaining cash based on capital account balances.
b. Sell assets, pay liabilities off, distribute gains or losses based on income sharing ratio, distribute cash based on income sharing ratio.
c. Sell assets, distribute gains or losses based on capital account balances, pay liabilities off, and distribute remaining cash based on capital account balances.
d. Sell assets, distribute cash based on income sharing ratio, pay liabilities off, distribute remaining cash based on income sharing ratio.
3. Able and Baker invest $100,000 and $50,000, respectively, in a partnership and agree (in writing) to a division of net income/loss that provides for an allowance of interest at 10% on original investments, salary allowances of $12,000 and $24,000, respectively, and the remainder to be divided equally. Baker's share of a net income of $45,000 is
a. $29,000.
b. $26,000.
c. $22,000.
d. $19,000.
4. If a bonus is to be paid to an incoming new partner, this indicates that the incoming partner
a. Is contributing more to the partnership than the existing partners' capital accounts after admission of the new partner.
b. Is contributing the same amount to the partnership as the existing partners' capital accounts after admission of the new partner.
c. Is contributing less to the partnership than the existing partners' capital accounts after admission of the new partner.
d. The answer cannot be determined without additional information being provided.