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Exam 12: Accounting for Partnerships

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Question 41

Multiple Choice

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The withdrawals account of each partner is:

A) Closed to that partner's capital account with a credit.
B) Closed to that partner's capital account with a debit.
C) A permanent account that is not closed.
D) Credited with that partner's share of net income.
E) Debited with that partner's share of net loss.

F) A) and B)
G) B) and E)

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Question 42

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In the absence of a partnership agreement, the law says that income of a partnership will be shared equally by the partners.

A) True
B) False

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Question 43

Multiple Choice

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Shelby and Mortonson formed a partnership with capital contributions of $300,000 and $400,000, respectively. Their partnership agreement calls for Shelby to receive a $60,000 per year salary. Also, each partner is to receive an interest allowance equal to 10% of a partner's beginning capital investments. The remaining income or loss is to be divided equally. If the net income for the current year is $135,000, then Shelby and Mortonson's respective shares are:

Groh and Jackson are partners. Groh's capital balance in the partnership is $64,000, and Jackson's capital balance $61,000. Groh and Jackson have agreed to share equally in income or loss. Groh and Jackson agree to accept Block with a 25% interest. Block will invest $35,000 in the partnership. The bonus that is granted to Block equals:

A partnership is an unincorporated association of two or more people to pursue a business for profit as co-owners.

Trump and Hawthorne have decided to form a partnership. Trump is going to contribute a depreciable asset to the partnership as his equity contribution to the partnership. The following information regarding the asset to be contributed by Trump is available: *will be assumed by the partnership Based on this information, Trump's beginning equity balance in the partnership will 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?

Partners in a partnership are taxed on the amounts they withdraw from the partnership, not the partnership income.

Regina Harrison is a partner in Pressed for Time. An analysis of Regina Harrison's capital account indicates that during the most recent year, she withdrew $20,000 from the partnership. Her share of the partnership's net loss was $16,000 and she made an additional equity contribution of $10,000. Her capital account ended the year at $150,000. What was her capital balance at the beginning of the year?

If partners devote their time and services to their partnership, their salaries are expenses on the income statement.

To buy into an existing partnership, the new partner must contribute cash to the partnership.

Limited liability partnerships are designed to protect innocent partners from malpractice or negligence claims resulting from the acts of another partner.

Disadvantages of a partnership include:

Define the partner return on equity ratio and explain how a specific partner would use this ratio.

How are partners' investments in a partnership recorded?

During the closing process, partner's capital accounts are _______________ for their share of net income and _________________ for their share of net loss.

Partner return on equity can be used by each partner to help decide whether additional investment or withdrawal of resources is best for that partner.

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.

Mutual agency means each partner can commit or bind the partnership to any contract within the scope of the partnership business.

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