Exam 12: Accounting for Partnerships

Flaherty, P. Denny, and G. Newman are forming a partnership. Flaherty is transferring $75,000 of personal cash to the partnership. Denny owns land worth $22,000 and a small building worth $120,000, which she transfers to the partnership. Newman transfers to the partnership cash of $14,000, accounts receivable of $48,000 and equipment worth $28,000. The partnership expects to collect $43,000 of the accounts receivable. Instructions (a) Prepare the journal entries to record each of the partners' investments. (b) What amount would be reported as total owners' equity immediately after the investments?

Cain, Foley, and Hardy formed a partnership on January 1, 2010. Cain invested $60,000, Foley $60,000 and Hardy $140,000. Cain will manage the store and work 40 hours per week in the store. Foley will work 20 hours per week in the store, and Hardy will not work. Each partner withdrew 30 percent of his income distribution during 2010. If there was no income distribution to a partner, there were no withdrawals of cash. Instructions Compute the partners' capital balances at the end of 2010 under the following independent conditions: (Hint: Use T accounts to determine each partner's capital balances.) (1) Net income is $120,000 and the income ratio is Cain 40%, Foley 35%, and Hardy 25%. (2) Net income is $140,000 and the partnership agreement only specifies a salary of $50,000 to Cain and $30,000 to Foley. (3) Net income is $86,000 and the partnership agreement provides for (a) a salary of $40,000 to Cain and $40,000 to Foley, (b) interest on beginning capital balances at the rate of 10%, and (c) any remaining income or loss is to be shared by Cain 40%, Foley 35%, and Hardy 25%.

Salary allowances to partners are a major expense on most partnership income statements.

The net income of the Rice and Nance partnership is $180,000. The partnership agreement specifies that Rice and Nance have a salary allowance of $48,000 and $72,000, respectively. The partnership agreement also specifies an interest allowance of 10% on capital balances at the beginning of the year. Each partner had a beginning capital balance of $120,000. Any remaining net income or net loss is shared equally. What is Rice's share of the $180,000 net income?

Mock is admitted to a partnership with a 25% capital interest by a cash investment of $120,000. If total capital of the partnership is $520,000 before admitting Mock, the bonus to Mock is

Bale, Heller, and Winrow share income and losses in a ratio of 3:2:5, respectively. The capital account balances of the partners are as follows: Instructions Prepare the journal entry on the books of the partnership to record the withdrawal of Winrow under the following independent circumstances: 1. The partners agree that Winrow should be paid $280,000 by the partnership for his interest. 2. The partners agree that Winrow should be paid $180,000 by the partnership for his interest. 3. Bale agrees to pay Winrow $180,000 for one-half of his capital interest and Heller agrees to pay Winrow $180,000 for one-half of his capital interest in a personal transaction among the partners.

On November 30, capital balances are Gast $120,000, Cook $100,000 and Irving $100,000. The income ratios are 20%, 20% and 60% respectively. Gast decides to retire from the partnership. In order for Cook and Irving to have equal capital interests after the retirement of Gast, how much partnership cash would have to be paid to Gast for her partnership interest?

The Jones and Yancey partnership reports net income of $45,000. Partner salary allowances are Jones $18,000 and Yancey $12,000. Any remaining income is shared 60:40. Instructions Determine the amount of net income allocated to each partner.

A debit balance in a partner's capital account is called a _____________.

L. Hill invests the following assets in a new partnership: $15,000 in cash, and equipment that cost $30,000 but has a book value of $17,000 and fair market value of $20,000. Hill, Capital will be credited for $32,000.

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

If a partner's investment in a partnership consists of Accounts Receivable of $25,000 and an Allowance for Doubtful Accounts of $7,000, it would not be appropriate for the partnership to record the Allowance for Doubtful Accounts.

The admission of a new partner results in the legal dissolution of the existing partnership and the beginning of a new partnership.

In an admission of a partner by investment of assets, the total net assets and total capital of the partnership do not change.

Partners Audrey, Betty, and Charles have capital account balances of $120,000 each. The income and loss ratio is 5:2:3, respectively. In the process of liquidating the partnership, noncash assets with a book value of $100,000 are sold for $40,000. The balance of Betty's Capital account after the sale is

A general partner in a partnership

Partners Acer and Barr have capital balances in a partnership of $40,000 and $60,000, respectively. They agree to share profits and losses as follows: If income for the year was $50,000, what will be the distribution of income to Barr?

Match the items below by entering the appropriate code letter in the space provided. A. Mutual agency B. Unlimited liability C. Partnership agreement D. Income ratio E. Partners' capital statement F. Admission by investment G. Purchase of an interest H. Partnership liquidation I. Capital deficiency J. Distribution of cash to partners in liquidation of a partnership. 1. Each partner is personally and individually liable for partnership debts. 2. Made on basis of partners' capital balances. 3. Explains changes in individual partner's capital accounts during a period. 4. Each partner can bind the partnership so long as the action appears to be appropriate for the partnership. 5. Business terminates. 6. Results in an increase in total net assets and total capital of the partnership. 7. Capital account with a debit balance. 8. The basis for sharing income and losses. 9. Total net assets and total capital of the partnership do not change. 10. Written or verbal contract establishing duties and responsibilities of partners.

When a partner withdraws from the firm, which of the following reflects the correct partnership effects?

An interest allowance in sharing partnership net income (or net loss) is related to the amount of partners' invested capital during the period.