Exam 12: Accounting for Partnerships

The partnership agreement of Rossi and Petry provides for salary allowances of $45,000 to Rossi and $35,000 to Petry, with the remaining income or loss to be divided equally. During the year, Rossi and Petry each withdraw cash equal to 80% of their salary allowances. If partnership net income is $100,000, Rossi's equity in the partnership would

Dobson, Lancaster, and Pender are partners who share profits and losses 50%, 30%, and 20%, respectively. Their capital balances are $150,000, $90,000, and $60,000, respectively. Instructions (a) Assume Shannon joins the partnership by investing $120,000 for a 25% interest with bonuses to the existing partners. Prepare the journal entry to record his investment. (b) Assume instead that Dobson leaves the partnership. Dobson is paid $180,000 with a bonus to the retiring partner. Prepare the journal entry to record Dobson's withdrawal.

Rosen and Noble decide to organize a partnership. Rosen invests $15,000 cash, and Noble contributes $12,000 cash and equipment having a book value of $6,000. Choose the entry to record Noble's investment in the partnership assuming the equipment has a fair market value of $9,000.

A partnership is an association of no more than two persons to carry on as co-owners of a business for profit.

The partnership agreement between partners must be in writing.

If a partnership has a loss for the period, the closing entry to transfer the loss to the partners will require a credit to the Income Summary account.

In liquidation, balances prior to the distribution of cash to the partners are: Cash $360,000; Peterson, Capital $168,000; Staley, Capital $156,000, and Klugman, Capital $36,000. The income ratio is 6:2:2, respectively. How much cash should be distributed to Peterson?

Unless stated otherwise in the partnership contract, profits and losses are shared among the partners in the ratio of their capital equity balances.

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.

The MFP Partnership is to be liquidated when the ledger shows the following: Moss, Fairly, and Pratt's income ratios are 6:3:1, respectively. Instructions Prepare separate entries to record the liquidation of the partnership assuming that the noncash assets are sold for $150,000 in cash.

The liquidation of a partnership may result from each of the following except the

In liquidation, balances prior to the distribution of cash to the partners are: Cash $306,000; Peterson, Capital $168,000; Staley, Capital $156,000, and Klugman, Capital $18,000 deficiency. The income ratio is 6:2:2, respectively. How much cash should be distributed to Staley if Klugman does not pay his deficiency?

Which of the following statements is true regarding the form of a legally binding partnership contract?

Unless the partnership agreement specifically indicates an income ratio, partnership net income or loss is not allocated to the partners.

Two proprietorships cannot combine and form a partnership.

Jan Penny and Barb Gant have formed the PG Partnership, and have capital balances of $130,000 and $100,000, respectively, on January 1, 2010. On June 1, 2010, Gant invested an additional $30,000. Also during the year, Penny withdrew $60,000 and Gant withdrew $48,000. Sales for the year amounted to $360,000 and expenses were $260,000. Penny and Gant share income and losses on a 3:1 basis. Instructions (a) Prepare the closing entries at December 31, 2010, for the PG Partnership. (b) Prepare a partners' capital statement for 2010.

An income ratio based on capital balances might be appropriate when

Are the financial statements of a partnership similar to those of a proprietorship? Discuss.

Danny and Vicky are forming a partnership. Danny will invest a truck with a book value of $10,000 and a fair market value of $14,000. Vicky will invest a building with a book value of $30,000 and a fair market value of $42,000 with a mortgage of $15,000. What amount should be recorded in Danny's capital account?

The adjusted trial balance of the Melton and Yount Partnership for the year ended December 31, 2010, appears below: The partnership agreement stipulates that a division of partnership net income or net loss is to be made as follows: 1. A salary allowance of $12,000 to Melton and $23,000 to Yount. 2. The remainder is to be divided equally. Instructions (a) Prepare a schedule which shows the division of net income to each partner. (b) Prepare the closing entries for the division of net income and for the drawing accounts at December 31, 2010.