Exam 12: Accounting for Partnerships

Tim Tarrant and Jim Edmonds share partnership profit on a 3:2 basis. They have capital balances of $170,000 and $90,000, respectively, when JT Ryder is admitted to the partnership. Instructions Prepare the journal entry to record the admission of Ryder under each of the following assumptions: a. Ryder invests $100,000 for a 25% ownership interest. b. Ryder invests $40,000 for a 25% ownership interest. c. Ryder invests an amount that gives him a 20% ownership interest.

A capital deficiency may be caused by

A partnership must have a legal written agreement.

A partner contributes, as part of her initial investment, accounts receivable with an allowance for doubtful accounts. Which of the following reflects a proper treatment?

At June 30, Fine Balance Partnership is liquidated. Just before the liquidation, Fine Balance has cash of $2,800, equipment of $45,000, accumulated depreciation of $31,000, accounts payable of $6,000, and the following partner capital accounts: R. Mistry $9,000; M. Mohal $1,800. Partners share in profit or losses equally. Upon liquidation, the equipment is sold for $10,000 cash, the accounts payable are paid in full, and any remaining cash is distributed to the partners. If a partner's capital account is in a deficit balance, he or she will contribute the necessary cash to the partnership to cover it. Instructions Calculate how much cash will be paid to, or received from, each partner upon liquidation.

Hill invests $30,000 in cash (admission by investment) in the Morgan-Carr partnership to acquire a 1/4 interest. In this case

Jim Steele and John Rich operate separate auto repair shops as proprietorships. On January 1, 2014, they decide to combine their separate businesses to form Steele Rich Auto Repair, a partnership. Information from their separate balance sheets is presented below: It is agreed that the expected realizable value of Steele's accounts receivable is $5,000 and Rich's receivables is $4,000. The fair value of Steele's equipment is $15,000 and Rich's equipment is $24,000. It is further agreed that the new partnership will assume all liabilities of the proprietorships with the exception of the notes payable on Rich's balance sheet which he will pay himself. Instructions Prepare the journal entries necessary to record the formation of the partnership.

Sam Kirby invests personally owned equipment, which originally cost $30,000 and has accumulated depreciation of $6,000 in the Kirby and Gosse partnership. Both partners agree that the fair value of the equipment was $25,000. The entry made by the partnership to record Kirby's investment should be

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

The Felix and Morris Partnership has capital account balances as follows: The partners share profit and losses in the ratio of 60% to Felix and 40% to Morris. Instructions Prepare the journal entry on the books of the partnership to record the admission of Singh as a new partner under the following three independent circumstances: a. Singh pays $80,000 to Felix and $95,000 to Morris for one-half of each of their ownership interests in a personal transaction. b. Singh invests $150,000 in the partnership for a one-third interest in partnership capital. c. Singh invests $1,000,000 in the partnership for a one-third interest in partnership capital.

There are three accounting issues where there are some differences between partnerships and proprietorships. Which one of the following is NOT a difference?

A profit ratio based on capital balances might be appropriate when

Which of the following is correct when admitting a new partner into an existing partnership?

Pac-link Technologies is a partnership owned and operated by Tom Kennedy and Mike McConnell. To recognize the fact that the partners have invested significantly different amounts of capital and that Tom works full time, while Mike works only part time, the partnership agreement states that the profit will be allocated as follows: An interest allowance of 3% of each partner's beginning capital balance plus a salary allowance of $85 per hour worked. Any remaining profit or loss after calculation of these allowances will be allocated equally. At January 1, 2014, Tom's capital account balance was $15,000 and Mike's was $20,000. During the year ended December 31, 2014, Tom worked 1,200 hours and Mike worked 550 hours. Instructions a. Calculate each partner's share of profit assuming that profit for the year ended December 31, 2014 is $196,000. b. Calculate each partner's share of profit assuming that profit for the year ended December 31, 2014 is $88,000.

If a partnership is dissolved, an asset does NOT legally return to the partner who originally contributed it.

Crosby and Malkin sell to Staal a 1/3 interest in the Crosby-Malkin partnership. Staal will pay Crosby and Malkin each $60,000 for admission into the organization. Before this transaction, Crosby and Malkin show capital balances of $45,000 each. The journal entry to record the admission of Staal will

Which of the following is NOT an advantage of the partnership form of business?

A partnership is NOT an accounting entity for financial reporting purposes.

The following information is available regarding CGG Company's partnership accounts at December 31, 2014, before completion of the closing entries: No new contributions were made during 2014. Godfrey wishes to withdraw from the partnership January 1, 2015. Instructions a. Prepare the statement of partners' equity for the year ended December 31, 2014. b. Prepare the January 1, 2015 entry to record Godfrey's withdrawal under each of the following three independent alternatives: (i) Choudrey and Gilker each pay Godfrey $10,000 out of their personal accounts and each receives one half of Godfrey's equity. (ii) Godfrey is paid $100,000 out of partnership cash. (iii) Godfrey is paid $40,000 out of partnership cash.