Exam 12: Accounting for Partnerships

Pellah (beginning capital $80000) and M. Berry (beginning capital $120000) are partners. During 2017 the partnership earned net income of $90000 and Pellah made drawings of $24000 while Berry made drawings of $32000. Instructions (a) Assume the partnership income-sharing agreement calls for income to be divided 40% to Pellah and 60% to Berry. Prepare the journal entry to record the allocation of net income. (b) Assume the partnership income-sharing agreement calls for income to be divided with a salary of $40000 to Pellah and $35000 to Berry with the remainder divided 40% to Pellah and 60% to Berry. Prepare the journal entry to record the allocation of net income. (c) Assume the partnership income-sharing agreement calls for income to be divided with a salary of $50000 to Pellah and $45000 to Berry interest of 10% on beginning capital and the remainder divided 50%-50%. Prepare the journal entry to record the allocation of net income. (d) Compute the partners' ending capital balances under the assumption in part (c).

Mary Jessica's capital statement reveals that her drawings during the year were $50000. She made an additional capital investment of $25000 and her share of the net loss for the year was $10000. Her ending capital balance was $200000. What was Jessica's beginning capital balance?

Appalachian Company at December 31 has cash $40000 noncash assets $200000 liabilities $110000 and the following capital balances: Hoffman $90000 and Mena $40000. The firm is liquidated and $220000 in cash is received for the noncash assets. Hoffman and Mena income ratios are 60% and 40% respectively. Instructions Prepare a cash distribution schedule.

The financial statements of a partnership are similar to those of a proprietorship.

Carraway and Boos have a partnership agreement which includes the following provisions regarding sharing net income or net loss: 1. A salary allowance of $48000 to Carraway and $36000 to Boos. 2. An interest allowance of 10% on capital balances at the beginning of the year. 3. The remainder to be divided 60% to Carraway and 40% to Boos. The capital balance on January 1 2017 for Carraway and Boos was $90000 and $120000 respectively. During 2017 the Carraway and Boos Partnership had sales of $495000 cost of goods sold of $290000 and operating expenses of $85000. Instructions Prepare an income statement for the Carraway and Boos Partnership for the year ended December 31 2017. As a part of the income statement include a Division of Net Income to each of the partners.

Which of the following is not a necessary action that the partnership must take upon the death of a partner?

On November 30 capital balances are Forsyth $720000 Lagassi $600000 and Kelly $600000. The income ratios are 20% 20% and 60% respectively. Forsytha decides to retire from the partnership. The partnership pays Forsyth $600000 cash for her partnership interest. After Forsyth's retirement what is the balance of Kelly's capital account?

Rogers and Wissinger have partnership capital balances of $576000 and $432000 respectively. Wissinger negotiates to sell his partnership interest to Mergenthaler for $504000. Rogers agrees to accept Mergenthaler as a new partner. The partnership entry to record this transaction is a. Cash 504,000 Mergenthaler, Capital 504,000 b. Wissinger, Capital 504,000 Mergenthaler, Capital 504,000 c. Cash 72,000 Wissinger, Capital 432,000 Mergenthaler, Capital 504,000 d. Wissinger, Capital 432,000 Mergenthaler, Capital 432,000

Partners Cantor and Dickens have capital balances in a partnership of $160000 and $240000 respectively. They agree to share profits and losses as follows: As salaries \ 40,000 \ 48,000 As interest on capital at the beginning of the year 10\% 10\% Remaining profits or losses 50\% 50\% If net loss for the year was $8000 what will be the distribution to Dickens?

If salary allowances and interest on capital are stipulated in the partnership profit and loss sharing agreement they are implemented only if income is sufficient to cover the amounts required by these features.

Barr & Eglin Co. reports net income of $42000. The partnership agreement provides for annual salaries of $24000 for Barr and $18000 for Eglin and interest allowances of $4000 to Barr and $6000 to Eglin. Any remaining income or loss is to be shared 70% by Barr and 30% by Eglin. Instructions Compute the amount of net income distributed to each partner.

Which of the following statements about a partnership is correct?

If the partnership agreement specifies salaries to partners interest on partners' capital and the remainder on a fixed ratio and partnership net income is not sufficient to cover both salaries and interest

Michelle Hamilton and Bill Rossi decide to form a partnership. Hamilton invests $35000 cash and accounts receivable of $30000 less allowance for doubtful accounts of $2000. Rossi contributes $25000 cash and equipment having a $6000 book value. It is agreed that the allowance account should be $3000 and the fair value of the equipment is $10000. Instructions Prepare the necessary journal entry to record the formation of the partnership.

When a new partner's capital interest on the date of admittance is less than his or her investment in the firm a ______________ results for the ______________ partner(s).

Jill and Smita have partnership capital account balances of $1056000 and $792000 respectively and share profits and losses equally. Sierra is admitted to the partnership by investing $440000 for a one-fourth ownership interest. The balance of Smita's Capital account after Sierra is admitted is

Motts is admitted to a partnership with a 25% capital interest by a cash investment of $90000. If total capital of the partnership is $390000 before admitting Motts the bonus to Mock is

If a new partner invests in a partnership at book value and acquires a 1/4 interest in total partnership capital it indicates that a bonus was paid to the original partners.

In liquidating a partnership it is necessary to convert ______________ into cash and to allocate any ______________ or ______________ to the partners based on their income ratios.