Exam 19: Accounting for Partnerships

The compensation of partners (other than their share of profits) may be in the form of salaries, royalties, commissions, or bonuses.

If the retiring partner's interest is sold to one of the remaining partners, the retiring partner's equity is merely transferred to the other partner.

If a partner is permitted to withdraw more than the book value of his/her interest, the effect of the transaction will increase the capital accounts of the remaining partners.

When two sole proprietors decide to combine their businesses, assets should be recorded at their book value as of the date of formation of the partnership.

In opening the books for a partnership, it is customary to prepare a single journal entry for the investment of all partners.

After closing the temporary owners' equity accounts into Income Summary, and after allocating the net income and closing the partners' drawing accounts, assume the partners' capital accounts had credit balances as follows: Sanchez, $20,000; Dorvinsky, $30,000; Davenport, $45,000. Partners share profits and losses as follows: Sanchez, 20%; Dorvinsky, 30%; and Davenport, 50%. If Davenport retired and withdrew $40,000 in settlement of his/her equity and settlements are allocated according to capital interests, the amount entered in Dorvinsky's capital account would be a

Match the terms with the definitions. -A process of selling the assets, paying the liabilities, and distributing the remaining cash or other assets to the partners.

Maureen Knipper and Jordan Klein have been sole proprietors of separate animal relocation businesses for several years. On January 1, 20--, they form a partnership called K & K Animal Kingdom. The following balance sheets provided for each business serve as the basis for the partnership: ​ ​ Knipper and Klein agree that the information provided on the balance sheets represents market values, except for the assets listed below for which appraisals of current market values were obtained. ​ Required: Prepare the opening journal entries for the formation of K & K Animal Kingdom.

The interest of a partner in the partnership can be transferred freely without the consent of the other partners.

Partners are taxed on the amount withdrawn, not on their share of net income.

If the partnership agreement does not state how profits and losses are to be shared, they are allocated according to the partners' capital interests.

Yon Haggerdorf and Sue Lee, who have ending capital balances of $80,000 and $60,000, respectively, agree to admit two new partners to their business on April 1, 20--. Carlos Sanchez will buy 1/4 of Haggerdorf's equity interest for $20,000 and 1/3 of Lee's equity interest for $25,000 directly from the partners. Carmen Della will invest $30,000 in the business for which she is to receive a $30,000 equity interest. Required: a. Prepare general journal entries showing the above transactions admitting Sanchez and Della to the partnership. b. Calculate the ending capital balances for all four partners after the above transactions. ​

The partnership form of organization is more popular among professional service enterprises than among merchandise enterprises.

The book value of a partner's interest is shown by the credit balance of the partner's capital account, after all profits or losses have been allocated in accordance with the partnership agreement, and the books have been closed.

In the absence of any agreement between partners, profits and losses must be shared

Only one partner can be individually liable for all of the debts of the partnership.

A disadvantage that is NOT peculiar to the partnership form of organization includes

In comparison with the single proprietorship form of organization, the partnership form offers which of the following advantages?

The Uniform Partnership Act states that a "corporation is an association of two or more persons who carry on, as co-owners, a business for profit."

When a partnership is liquidated, the assets are sold and the cash realized is applied first to the