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Exam 26: Accounting for Partnerships

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Question 1

True/False

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The withdrawals account of each partner is closed to retained earnings at the end of the accounting period.

A) True
B) False

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Question 2

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When a partner is unable to pay a capital deficiency:

A) The partner must take out a loan to cover the deficient balance.
B) The deficiency is absorbed by the remaining partners.
C) The partnership ends.
D) The deficient partner has no personal liability to pay the deficiency.
E) The partnership must be liquidated.

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

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Question 3

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A partnership cannot use salary allowances or interest allowances if it uses the stated ratio method to allocate income and losses to the partners.

Partner return on equity is calculated as ______________________________.

Groh and Jackson are partners. Groh's capital balance in the partnership is $64,000 and Jackson's capital balance is $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:

Kathleen Reilly and Ann Wolf decide to form a partnership on August 1. Reilly invested the following assets and liabilities in the new partnership: $\begin{array} { | l | c | c | } \hline & \text { Cost/Book Value } & \text { Market Value } \\\hline \text { Land } & \$ 75,000 & \$ 100,000 \\\hline \text { Building } & \$ 250,000 & \$ 300,000 \\\hline \text { Note Payable } & \$ 198,000 & \$ 198,000 \\\hline\end{array}$ The note payable is associated with the building and the partnership will assume the responsibility for the loan. Wolf invested $60,000 in cash and $105,000 in new equipment in the new partnership. Prepare the journal entries to record the two partner's original investments in the new partnership.

When a partner leaves a partnership, the present partnership ends.

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?

Assume that the S & B partnership agreement gave Steely 60% and Breck 40% of partnership income and losses. The partnership recorded a loss of $27,000 in the current period. Steely's share of the loss equals $16,200 and Breck's share equals $10,800.

When a partner is added to a partnership:

Paco and Kate invested $99,000 and $126,000, respectively, in a partnership they began one year ago. Assuming the partnership earned $120,000 during the current year, compute the share of the net income each partner should receive under each of these independent assumptions.

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.

Partners' withdrawals of assets are:

If partners agree on how to share income, but say nothing about losses, then losses are shared ___________________.

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

If a partnership contract provides for interest at 10% annually on each partner's investment, the interest:

If the partners agree on a formula to share income and say nothing about losses, then the losses are shared equally.

If a partner withdraws from a partnership and the recorded value of his or her equity is overstated, then a bonus goes to _____________________; if the recorded value of the withdrawing partner's equity is understated, then a bonus goes to _______________________.

Web Services is organized as a limited partnership, with Wren Littlefeather as one of its partners. Wren's capital account began the year with a balance of $87,000. During the year, Wren's share of the partnership income was $60,000 and she received $25,000 in distributions from the partnership. What is Wren's partner return on equity?

Renee Jackson is a partner in Sports Promoters. Her beginning partnership capital balance for the current year $55,000 and her ending partnership capital balance for the current year is $62,000. Her share of this year's partnership income was $5,250. What is her partner return on equity?