Exam 14: Partnerships: Formation and Operation

Why are the terms of the Articles of Partnership important to partners?

A partnership began its first year of operations with the following capital balances: The Articles of Partnership stipulated that profits and losses be assigned in the following manner:Young was to be awarded an annual salary of $26,000 and $13,000 salary was to be awarded to Thurman.Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.Each partner withdrew $13,000 per year.Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.What was the balance in Young's Capital account at the end of the second year?

Assume the partnership of Dean, Hardin, and Roth has been in existence for a number of years.Dean decides to withdraw from the partnership when the partners' capital balances are as follows: An appraisal of the business and its property estimates the fair value to be $ 100,000. Dean has agreed to receive $64,000 in exchange for his partnership interest.What are the remaining partners' capital balances after Dean's interest is dissolved, assuming the bonus method is applied?

On January 1, 2021, Lamb and Mona LLP admitted Norris to a 20% interest in net assets for an investment of $50,000 cash. Prior to the admission of Norris, Lamb and Mona had net assets of $100,000 and an income-sharing ratio of 25% to Lamb and 75% to Mona. After the admission of Norris, the partnership contract included the following provisions:Salary of $40,000 a year to Norris.Remaining net income in ratio Lamb 20%, Mona 60%, Norris 20%.During the fiscal year ended December 31, 2021, the partnership had income of $90,000 prior to recognition of salary to Norris.Record the journal entry to record the remainder of net income to the capital accounts.

The capital account balances for Donald & Hanes LLP on January 1, 2021, were as follows: Donald and Hanes shared net income and losses in the ratio of 3:2, respectively. The partners agreed to admit May to the partnership with a 35% interest in partnership capital and net income. May invested $100,000 cash, and no goodwill was recognized.What is the balance of Hanes's capital account after the new partnership is created?

A partnership began its first year of operations with the following capital balances: The Articles of Partnership stipulated that profits and losses be assigned in the following manner:Young was to be awarded an annual salary of $26,000 and $13,000 salary was to be awarded to Thurman.Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.Each partner withdrew $13,000 per year.Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.What was Young's total share of net income for the second year?

James, Keller, and Rivers have the following capital balances; $48,000, $70,000 and $90,000, respectively. Because of a cash shortage James invests an additional $12,000 on June 1st. Each partner withdraws $1,000 per month. James, Keller, and Rivers receive a salary of $13,000, $15,000 and $20,000, respectively, for work done during the year. Each partner receives interest of 8% on that partner's monthly weighted average capital balance without regard to normal drawings. Any remaining profits are split 20%, 30%, and 50% respectively. The net income for the year is $30,000. What are the ending capital balances for each partner?

A partnership began its first year of operations with the following capital balances: The Articles of Partnership stipulated that profits and losses be assigned in the following manner:Young was to be awarded an annual salary of $26,000 and $13,000 salary was to be awarded to Thurman.Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year.The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively.Each partner withdrew $13,000 per year.Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year.What was the balance in Eaton's Capital account at the end of the first year?

Which of the following statements is correct regarding the admission of a new partner?

How is accounting for a partnership different from accounting for a corporation?

Jipsom and Klark were partners with capital account balances of $80,000 and $100,000, respectively. Looney directly paid $32,000 to Jipsom and $40,000 to Klark for 30% of their interests in the partnership. Jipsom and Klark shared income in the ratio of 2:3. They believed that revaluation of the partnership was appropriate when a new partner was admitted.Required:Prepare the journal entries to record the admission of Looney to the partnership.