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21. When a partnership is formed, noncash assets contributed by partners should be recorded:
I. at their respective book values for income tax purposes.
II. at their respective fair values for financial accounting purposes.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

22. When a new partner is admitted into a partnership and the new partner receives a capital credit less than the tangible assets contributed, which of the following explains the difference?
I. The new partner's goodwill has been recognized.
II. The old partners received a bonus from the new partner.
A. I only
B. II only
C. Either I or II
D. Neither I nor II

23. When a new partner is admitted into a partnership and the new partner receives a capital credit greater than the tangible assets contributed, which of the following explains the difference?
I. The old partners' goodwill is being recognized.
II. The new partner's goodwill is being recognized.
A. I only
B. II only
C. Either I or II
D. Both I and II

24. When a new partner is admitted into a partnership and the capital of the old partners decreases, which of the following explains the reason for the decrease?
I. Undervalued liabilities were written up to their fair values.
II. Undervalued assets were written up to their fair values.
A. I only
B. II only
C. Both I and II
D. Neither I nor II

25. When a partner retires from a partnership and the retiring partner is paid more than the capital balance in her account, which of the following explains the difference?
I. The retiring partner is receiving a bonus from the other partners.
II. The retiring partner's goodwill is being recognized.
A. I only
B. II only
C. Either I or II
D. Neither I nor II

26. When the old partners receive a bonus upon admission of a new partner into a partnership, the bonus is allocated to:
I. all the partners in their profit and loss sharing ratio.
II. the existing partners in their profit and loss sharing ratio.
A. I only
B. II only
C. Either I or II
D. Neither I nor II

27. When a new partner is admitted into a partnership and the old partners' goodwill is recognized, the goodwill is allocated to:
I. all the partners in their profit-and-loss-sharing ratio.
II. the old partners in their profit and loss sharing ratio.
A. I only
B. II only
C. Either I or II
D. Neither I nor II

In the RST partnership, Ron's capital is $80,000, Stella's is $75,000, and Tiffany's is $50,000. They share income in a 3:2:1 ratio, respectively. Tiffany is retiring from the partnership. Each of the following questions is independent of the others.

28. Refer to the above information. Tiffany is paid $60,000, and no goodwill is recorded. In the journal entry to record Tiffany's withdrawal:
A. Tiffany, Capital will be credited for $60,000.
B. Ron, Capital will be debited for $5,000.
C. Stella, Capital will be debited for $4,000.
D. Cash will be debited for $60,000.

29. Refer to the above information. Tiffany is paid $60,000, and no goodwill is recorded. What is the Ron's capital balance after Tiffany withdraws from the partnership?
A. $74,000
B. $71,000
C. $75,000
D. $86,000

30. Refer to the above information. Tiffany is paid $56,000, and all implied goodwill is recorded. What is the total amount of goodwill recorded?
A. $0
B. $6,000
C. $30,000
D. $36,000

In the AD partnership, Allen's capital is $140,000 and Daniel's is $40,000 and they share income in a 3:1 ratio, respectively. They decide to admit David to the partnership. Each of the following questions is independent of the others.

31. Refer to the information provided above. What amount will David have to invest to give him one-fifth percent interest in the capital of the partnership if no goodwill or bonus is recorded?
A. $60,000
B. $36,000
C. $50,000
D. $45,000

32. Refer to the information provided above. Assume that David invests $50,000 for a one-fourth interest. Goodwill is to be recorded. The journal to record David's admission into the partnership will include:
A. a credit to cash for $50,000.
B. a debit to goodwill for $7,500.
C. a credit to David, Capital for $60,000.
D. a credit to David, Capital for $50,000.

33. Refer to the information provided above. Allen and Daniel agree that some of the inventory is obsolete. The inventory account is decreased before David is admitted. David invests $40,000 for a one-fifth interest. What is the amount of inventory written down?
A. $4,000
B. $20,000
C. $15,000
D. $10,000

34. Refer to the information provided above. Allen and Daniel agree that some of the inventory is obsolete. The inventory account is decreased before David is admitted. David invests $40,000 for a one-fifth interest. What are the capital balances of Allen and Daniel after David is admitted into the partnership?

A. Option A
B. Option B
C. Option C
D. Option D

35. Refer to the information provided above. David directly purchases a one-fifth interest by paying Allen $34,000 and Daniel $10,000. The land account is increased before David is admitted. By what amount is the land account increased?
A. $40,000
B. $10,000
C. $36,000
D. $20,000

36. Refer to the information provided above. David directly purchases a one-fifth interest by paying Allen $34,000 and Daniel $10,000. The land account is increased before David is admitted. What are the capital balances of Allen and Daniel after David is admitted into the partnership?

A. Option A
B. Option B
C. Option C
D. Option D

37. Refer to the information provided above. David invests $40,000 for a one-fifth interest in the total capital of $220,000. The journal to record David's admission into the partnership will include:
A. a credit to Cash for $40,000.
B. a debit to Allen, Capital for $3,000.
C. a credit to David, Capital for $40,000.
D. a credit to Daniel, Capital for $1,000.

38. Refer to the information provided above. David invests $40,000 for a one-fifth interest in the total capital of $220,000. What are the capital balances of Allen and Daniel after David is admitted into the partnership?

A. Option A
B. Option B
C. Option C
D. Option D

39. Refer to the information provided above. David invests $50,000 for a one-fifth interest. What amount of goodwill will be recorded?
A. $20,000
B. $4,000
C. $40,000
D. $15,000

40. Which of the following observations is true of an S corporation?
A. It elects to be taxed in the same manner as a corporation.
B. It does not have the burden of double taxation of corporate income.
C. Its shareholders have personal liability for the corporation's obligations.
D. Its primary income source should be passive investments