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Exam 12: Accounting for Partnerships

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Question 61

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The statement of changes in partners' equity shows the beginning balance in retained earnings,plus investments,less withdrawals,plus the income (or less the loss)and the ending balance in retained earnings.

A) True
B) False

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Question 62

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Partners can invest both assets and liabilities into a partnership.

A) True
B) False

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Question 63

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Smith,West,and Krug form a partnership.Smith contributes $180,000,West contributes $150,000,and Krug contributes $270,000.Their partnership agreement calls for a 5% interest allowance on the partner's capital balances with the remaining income or loss to be allocated equally.If the partnership reports income of $174,000 for its first year,what amount of income is credited to Krug's capital account?

What are the ways that a new partner can be admitted to an existing partnership? Explain how to account for the admission of the new partner under each of these circumstances.

A partnership in which all partners have mutual agency and unlimited liability is called:

A partnership agreement:

Conley and Liu allow Lepley to purchase a 25% interest in their partnership for $35,000 cash.Lepley has exceptional talents that will enhance the partnership.Conley's and Liu's capital account balances are $55,000 each.The partners have agreed to share income or loss equally.Prepare the general journal entry to record the admission of Lepley to the partnership.

Nee High and Low Jack are partners in an accounting firm and share net income and loss equally.High's beginning partnership capital balance for the current year is $285,000,and Jack's beginning partnership capital balance for the current year is $370,000.The partnership had net income of $250,000 for the year.High withdrew $90,000 during the year and Jack withdrew $100,000.What is High's return on equity?

If a partner is unable to cover a deficiency and the other partners absorb the deficiency,then the partner with the deficiency is thus relieved of all liability.

Jane and Castle are partners and share equally in income or loss.Jane's current capital balance is $140,000 and Castle's is $130,000.Jane and Castle agree to accept Sean with a 30% interest in the partnership.Sean invests $108,000 in the partnership.The balances in Jane's and Castle's capital accounts after admission of the new partner equal:

Durango and Verde formed a partnership with capital contributions of $150,000 and $190,000,respectively.Their partnership agreement called for Durango to receive a $50,000 annual salary allowance.They also agreed to allow each partner a share of income equal to 10% of their initial capital investments.The remaining income or loss is to be divided equally.If the net income for the current year is $120,000,what are Durango's and Verde's respective shares?

Chase and Hatch are partners and share equally in income or loss.Chase's current capital balance is $135,000 and Hatch's is $120,000.Chase and Hatch agree to accept Flax with a 30% interest in the partnership.Flax invests $115,000 in the partnership.The balances in Chase's and Hatch's capital accounts after admission of the new partner equal:

A partnership cannot use salary allowances or interest allowances to allocate income and losses to the partners because these items are not reported on the partnership income statement.

Smith,West,and Krug form a partnership.Smith contributes $180,000,West contributes $150,000,and Krug contributes $270,000.Their partnership agreement calls for the income or loss division to be based on the ratio of capital invested.If the partnership reports income of $175,000 for its first year,what amount of income is credited to Krug's capital account?

Juanita invested $100,000 and Jacque invested $95,000 in a new partnership.They agreed to a $50,000 annual salary allowance to Juanita and a $40,000 annual salary allowance to Jacque.They also agreed to an annual interest allowance of 10% on the partners' beginning-year capital balance,with the balance to be divided equally.Under this agreement,what are the income or loss shares of the partners if the annual partnership income is $102,000?

Badger and Fox are forming a partnership.Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property.Fox invests $100,000 in cash and equipment that has a market value of $75,000.For the partnership,the amounts recorded for total assets and for total capital account are:

In the absence of a partnership agreement,the law says that income (and loss) should be allocated based on:

Sam,Bart,and Lex are dissolving their partnership.Their partnership agreement allocates each partner 1/3 of all income and losses.The current period's ending capital account balances are Sam,$45,000; Bart,$37,000; and Lex,$(5,000) .After all assets are sold and liabilities are paid,there is $77,000 in cash to be distributed.Lex is unable to pay the deficiency.The journal entry to record the distribution should be:

Web Services is organized as a limited partnership,with David White as one of its partners.David's capital account began the year with a balance of $45,000.During the year,David's share of the partnership income was $7,500,and David received $4,000 in distributions from the partnership.What is David's partner return on equity?

Jane,Castle,and Sean are partners who share income and loss in a 3: 2: 2 ratio.The partnership's capital balances are as follows: Jane,$332,000; Castle,$124,000; and Sean,$214,000.Sean decides to withdraw from the partnership,and the partners agree not to have the assets revalued upon Sean's retirement.Prepare journal entries to record Sean's withdrawal from the partnership under each of the following separate assumptions: Sean (a)sells his interest to Conner for $200,000 after Jane and Castle approve the entry of Conner as a partner; (b)is paid $214,000 in partnership cash for his equity; (c)is paid $205,000 in partnership cash for his equity; (d)is paid $220,000 in partnership cash for his equity.