Multiple choice questions on partnership and fundamentals of accounts.

1. After one year of operation of the Smith & Kline partnership, Smith's capital account contains a balance of $46,000 and Kline's capital account contains $54,000. Each partner originally invested $40,000 in the firm. The partnership agreement provides for yearly salary allowances of $12,000 to Smith and $15,000 to Kline, with any balance to be shared equally. There were no additional investments during the year, and no withdrawals were made except for the stipulated salary allowances. The net income of the partnership must have been:
a. $ 27,000
b. $ 40,000
c. $ 45,000
d. $ 47,000
e. $100,000

2. J and K have partnership capital balances of $10,000 and $6,000, respectively. K decides to sell his interest to Z for $8,000, after receiving approval of J. The partnership entry to record this transaction is:

3. Partners A, B, and C share profits and losses equally and have capital balances of $10,000, $20,000, and $30,000, respectively. B wishes to withdraw from the partnership, and has agreed to accept $15,000 from the partnership for her interest. After this transaction, the capital balance of C will:
a. Decrease to $27,500.
b. Increase to $32,500.
c. Increase to $35,000.
d. Remain unchanged.

4. A partnership recorded the following journal entry:
a. Acceptance of a new partner who invests $70,000 and receives a $20,000 bonus.
b. Withdrawal of a partner who pays a $ 10,000 bonus to each of the other partners.
c. Addition of a partner who pays a bonus to each of the other partners.
d. Additional investment into the partnership by Tanner and Jackson.
e. Withdrawal of $ 10,000 each by Tanner and Jackson upon the admission of a new partner.

5. Common stockholders have the right:
a. To receive prescribed dividends.
b. To receive dividends before any dividends are paid to preferred stockholders.
c. To vote on many corporate matters.
d. To convert their shares into a stipulated number of preferred shares.

6. Rocky Mountain Ski Wear's balance sheet disclosed the following stockholder's equity
Account balances at the end of 20X5:
Common stock $350,000
Retained earnings 180,000
Notes Payable 70,000
Contributed capital in excess of par: common 120,000
Contributed capital in excess of par: preferred 40,000
Preferred stock 90,000
The total amount invested by stockholders and the corporation's total stockholders equity are:

7. Nancy's High Fashion, Inc., has 200,000 shares of $10 par value common stock and 2,000 shares of $100 par value preferred stock outstanding. The preferred stock is noncumulative and has a call price of $110. Total stockholders' equity is $4 million. The book value per share of the common stock is:
a. $17.80
b. $18.00
c. $20.00
d. $37.80
e. None of the above.

8. Mellon Corporation declared a 10% stock dividend on its S1 par value common stock when there were 100,000 shares outstanding. The market value of the stock on the date of declaration was $4 per share. How does the entry to record this declaration affect total stockholders' equity?
a. No effect.
b. $10,000 increase.
c. $10,000 decrease.
d. $40,000 decrease.
e. $40,000 increase.

9. Which of the following items would be accounted for as a prior period adjustment?
a. Appropriation of retained earnings.
b. Correction of an error.
c. Reissuance of treasury stock at a price below cost.
d. Change in accounting principle.
e. Change in the estimated life of a plant asset.

10. Which of the following items may be considered an extraordinary item on the income statement?
a. Write-down of inventories because of obsolete items.
b. Gain on the disposal of a business segment.
c. Loss from an earthquake.
d. Gain on the sale of a building.