Question :
11) Allison and Josh partners in a business. Allison’s capital : 1171106
11) Allison and Josh are partners in a business. Allison’s capital is $60,000 and Josh’s capital is $100,000. Profits for the year are $80,000. They agree to share profits and losses as follows:
Allison
Josh
Salaries
$20,000
$40,000
Interest on capital
10%
10%
Remaining profits and losses
3/5
2/5
Allison’s share of the profits before paying salaries and interest on capital is:
A) $48,000.
B) $22,000.
C) $28,000.
D) $28,400.
12) Allison and Josh are partners in a business. Allison’s capital is $60,000 and Josh’s capital is $100,000. Profits for the year are $80,000. They agree to share profits and losses as follows:
Allison
Josh
Salaries
$20,000
$40,000
Interest on capital
10%
10%
Remaining profits and losses
3/5
2/5
Josh’s share of the profit is:
A) $32,000.
B) $44,000.
C) ($8,000).
D) None of the above
13) Applying the interest allowance method, compute Taylor and Timmy’s share of net income if Taylor invested $300,000 and Timmy invested $700,000 at a 6% interest rate, with the remainder to be divided equally. Net income was $80,000.
A) Taylor, $24,000; Timmy, $56,000
B) Taylor, $40,000 Timmy, $40,000
C) Taylor, $28,000; Timmy, $52,000
D) None of these answers is correct.
14) The basis on which profits and losses are shared is governed by:
A) the SEC.
B) the IRS.
C) the partnership agreement.
D) the partners, and must be shared equally.
15) The different partners are taxed on:
A) the gross revenue of the partnership.
B) the amount they withdraw from the partnership.
C) the total amount of the net profit of the partnership.
D) the partners’ share of the net profit of the partnership.
16) The two types of allowances that may be considered before the division of profits and losses are:
A) interest and salary allowances.
B) interest and bonus allowances.
C) salary and bonus allowances.
D) bonus and liquidation allowances.
17) The income/loss agreement was ignored when closing the income summary and all income was distributed evenly. This error would cause:
A) the total partners’ equity to be overstated.
B) the total partners’ equity to be understated.
C) the total partners’ equity to be unaffected.
D) the ending assets to be overstated.
18) Applying the ratio based on investment method, compute Taylor and Timmy’s share of net income if Taylor invested $400,000 and Timmy invested $600,000. Net income was $75,000.
A) Taylor, $15,000; Timmy, $60,000
B) Taylor, $37,500; Timmy, $37,500
C) Taylor, $30,000; Timmy, $45,000
D) None of these answers is correct.
19) Partner B invested inventory using the retail selling price for valuation. Some of the inventory is unsold at period end. This error would cause:
A) the period’s net income to be overstated.
B) the period’s net income to be understated.
C) the ending assets to be overstated.
D) Both B and C are correct.
20) Applying the profit and loss ratio method, compute Taylor and Timmy’s share of net income if Taylor invested $200,000 and Timmy invested $800,000 and the profit and loss ratio is 3:2. Net income was $75,000.
A) Taylor, $15,000; Timmy, $60,000
B) Taylor, $37,500; Timmy, $37,500
C) Taylor, $45,000; Timmy, $30,000
D) None of these answers is correct.
