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Topic: QUESTION OF THE DAY - MCQ’S ALL SECTIONS (

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AndrewCPA
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Posted: 17 Sep 2010 at 18:38 \| IP Logged

Today's Question: FAR

Kern and Pate are partners with capital balances of $60,000 and $20,000, respectively. Profits and losses are divided in the ratio of 60:40. Kern and Pate decided to form a new partnership with Grant, who invested land valued at $15,000 for a 20% capital interest in the new partnership. Grant's cost of the land was $12,000. The partnership elected to use the bonus method to record the admission of Grant into the partnership. Grant's capital account should be credited for ______

A) 12,000

B) 15,000

C) 16,000

D) 19,000

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cpac01
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Posted: 18 Sep 2010 at 20:17 \| IP Logged

HopeCPAin2010
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Posted: 20 Sep 2010 at 10:58 \| IP Logged

The answer is D. 20% of total capital balance $95,000 after Grant's contribution is $19,000.

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AndrewCPA
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Posted: 20 Sep 2010 at 13:50 \| IP Logged

Correct answer: D

Explanation: Under the bonus method, the new partner's capital account is credited for 20% of the new balance of total capital. The new total capital is 95,000 ($60,000 + $20,000 + $15,000). Grant's capital balance will be 20% x $95,000, or $19,000. The bonus to Grant of $4,000 ($19,000 capital balance - $15,000 contribution) will be charged against the old partners’ capital accounts according to their profit and loss ratio.

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AndrewCPA
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Posted: 20 Sep 2010 at 17:51 \| IP Logged

Today's question: AUD

An auditor uses the knowledge provided by the understanding of internal control and the final assessed level of control risk primarily to determine the nature, timing, and extent of the:

A) Attribute tests

B) Compliance tests

C) Tests of controls

D) Substantive tests

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