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Exam 12: Accounting for Partnerships

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Question 51

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Which of the following statements is true?

A) Salaries to partners are expenses on the partnership income statement.
B) Interest allowances are expenses.
C) Salary allowances are expenses.
D) Partners are employees of the partnership.
E) Salary allowances usually reflect the relative value of services provided by partners.

F) B) and C)
G) A) and D)

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Question 52

Multiple Choice

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Caitlin, Chris, and Molly are partners and share income and losses in a 3:4:3 ratio. The partnership's capital balances are Caitlin, $120,000; Chris, $80,000; and Molly, $100,000. Paul is admitted to the partnership on July 1 with a 20% equity and invests $60,000. The balance in Paul's capital account immediately after his admission is:

A) $68,000
B) $300,000
C) $92,000
D) $72,000
E) $160,000

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

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Question 53

Multiple Choice

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Forman and Berry are forming a partnership. Forman will invest a building that currently is being used by another business owned by Forman. The building has a market value of $80,000. Also, the partnership will assume responsibility for a $20,000 note secured by a mortgage on that building. Berry will invest $50,000 cash. For the partnership, the amounts to be recorded for the building and for Forman's Capital account are:

When a partner leaves a partnership, the present partnership ends, but the business can still continue to operate.

Hewlett and Martin are partners. Hewlett's capital balance in the partnership is $64,000, and Martin's capital balance $67,000. Hewlett and Martin have agreed to share equally in income or loss. The existing partners agree to accept Black with a 20% interest. Black will invest $35,000 in the partnership. The bonus that is granted to Hewlett and Martin equals:

Peters, Chong, and Aaron are dissolving their partnership. Their partnership agreement allocates each partner an equal share of all income and losses. The current period's ending capital account balances are Peters, $54,000; Chong, $42,000; and Aaron, $(2,000) . After all assets are sold and liabilities are paid, there is $94,000 in cash to be distributed. Aaron is unable to pay the deficiency. The journal entry to record the distribution should be:

In a Limited Partnership, there must be more than one general partner.

Accounting procedures for both C corporations and S corporations are the same in all aspects.

The following information is available on TGR Enterprises, a partnership, for the most recent fiscal year: $\begin{array}{ll}\text { Total partnership capital at beginning of the year } & \$ 180,000 \\\text { Partnership net income for the year } & \$ 150,000 \\\text { Withdrawals by partners during the year } & \$ 120,000 \\\text { Additional investments by partners during the year } & \$ 60,000\end{array}$ There are three partners in TGR Enterprises: Tracey, Gregory and Rodgers. At the end of the year, the partners' capital accounts were in the ratio of 2:1:2, respectively. Compute the ending capital balances of the three partners.

Cox, North, and Lee form a partnership. Cox contributes $180,000, North contributes $150,000, and Lee 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 $150,000 for its first year, what amount of income is credited to Lee's capital account? (Do not round your intermediate calculations.)

Reno contributed $104,000 in cash plus equipment valued at $27,000 to the RD Partnership. The journal entry to record the transaction for the partnership is:

A capital deficiency exists when at least one partner has a debit balance in his or her capital account at the point of final cash distribution during liquidation.

When a partner leaves a partnership, the withdrawing partner is entitled to a bonus if the recorded equity is overstated.

Fontaine and Monroe are forming a partnership. Fontaine invests a building that has a market value of $250,000; the partnership assumes responsibility for a $75,000 note secured by a mortgage on the property. Monroe invests $100,000 in cash and equipment that has a market value of $55,000. For the partnership, the amounts recorded for Fontaine's Capital account and for Monroe's Capital account are:

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.

Fontaine and Monroe are forming a partnership. Fontaine invests a building that has a market value of $250,000; the partnership assumes responsibility for a $75,000 note secured by a mortgage on the property. Monroe invests $100,000 in cash and equipment that has a market value of $55,000. For the partnership, the amounts recorded for total assets and for total capital account are:

The withdrawals account of each partner is closed to income summary at the end of the accounting period.

If at the time of partnership liquidation, a partner has a $5,000 capital deficiency and pays the partnership $5,000 out of personal assets to cover the deficiency, then that partner is entitled to share in the final distribution of cash.

Wright, Bell, and Edison are partners and share income in a 2:5:3 ratio. The partnership's capital balances are as follows: Wright, $33,000, Bell $27,000 and Edison $40,000. Edison decides to withdraw from the partnership, and the partners agree not to revalue the assets upon Edison's retirement. The journal entry to record Edison's June 1 withdrawal from the partnership if Edison is paid $40,000 for his equity is:

A partnership recorded the following journal entry: $\begin{array} { | l | r | r | } \hline \text { Cash } & 60,000 & \\\hline \text { B. Founder, Capital } & 10,000 & \\\hline \text { R. Aqui, Capital } & 10,000 & \\\hline \text { H. Joiner, Capital } & & 80,000 \\\hline\end{array}$ This entry reflects: