Exam 12: Accounting for Partnerships

Rich and Poore have partnership capital balances of $160,000 and $120,000, respectively. Poore negotiates to sell his partnership interest to Claudio for $140,000. Rich agrees to accept Claudio as a new partner. The partnership entry to record this transaction is

The procedures for withdrawal of a partner from a partnership must be specified in the partnership agreement.

Sam Bilbo and Edmond Lewis who operate the Shire Partnership have decided to liquidate their business and retire. Sam and Edmond allocate profit and losses on a 3:2 basis respectively. At December 31, 2013, after all closing entries have been made, the trial balance of the partnership shows the following account balances: The inventory is sold on January 1, 2014 for cash, and the liabilities are paid. Both partners have the resources to cover deficits (if any) in their capital accounts. Instructions For each of the following independent alternatives: a. Assuming the inventory is sold for $25,000, calculate the balance in each partner's capital account after allocating the gain or loss on sale of inventory and payment of the liabilities. Prepare the entry to record the receipt of cash from, or payment of cash to, each partner to liquidate the partnership. b. Assuming the inventory is sold for $57,000, calculate the balance in each partner's capital account after allocating the gain or loss on sale of inventory and payment of the liabilities. Prepare the entry to record the receipt of cash from, or payment of cash to, each partner to liquidate the partnership.

Laroche, Kennedy, and White formed a partnership on January 1, 2013. Laroche invested $40,000, Kennedy $30,000 and White $50,000. Laroche will manage the store and work 40 hours per week in the store. Kennedy will work 20 hours per week in the store, and White will not work. Each partner withdrew 30 percent of his profit distribution during 2013. If there was no profit distribution to a partner, there were no withdrawals of cash. Instructions Calculate the partners' capital balances at the end of 2013 under the following independent conditions: (Hint: use T accounts to determine each partner's capital balance.) a. Profit is $80,000 and the profit ratio is Laroche 40%, Kennedy 35%, and White 25%. b. Profit is $100,000 and the partnership agreement specifies a salary of $35,000 to Laroche and $20,000 to Kennedy. Any remaining amount is to be shared equally among the partners. c. Profit is $35,000 and the partnership agreement provides for (a) a salary of $20,000 to Laroche and $20,000 to Kennedy, (b) interest on beginning capital balances at the rate of 6%, and (c) any remaining profit or loss is to be shared by Laroche 50%, Kennedy 35%, and White 15%.

Jane Zhou, Ron Higgins and Liz O'Neill are three partners who operate ZHO Consulting, which has a June 30 year end. For the year ended June 30, 2014, the partnership had revenue of $380,000 and operating expenses of $176,000. Information about the partnership accounts is as follows: Instructions a. Prepare the Statement of Partners' Equity for the year ended June 30, 2014. b. Prepare a partial balance sheet at June 30, 2014, showing the Partners' Equity section. c. Prepare closing entries for the June 30, 2014 year end.

O'Brien is investing in a partnership with Skanes. O'Brien contributes equipment that originally cost $21,000, has a carrying amount of $14,000, and a fair value of $16,000. The entry that the partnership makes to record O'Brien's initial contribution includes a

If a new partner is purchasing the interests of an existing partner, the purchase price passes directly from the new partner to the old partner and does NOT flow through the partnership.

The profit of the Miskell and Leblanc partnership is $30,000. The partnership agreement specifies that Miskell and Leblanc have a salary allowance of $8,000 and $12,000, 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 $20,000. Any remaining profit or loss is shared equally. -What is Miskell's share of the $30,000 profit?

The liquidation of a partnership is done to ensure that the fair value of the remaining assets is recorded accurately.

When profit is allocated in a 3:2:1 ratio, it means that one partner will get 50% of the profit.

A partnership must make a profit.

Partners are NEVER allocated a salary in a partnership.

Which of the following statements about partnerships is INCORRECT?

In the withdrawal of a partner, a payment from the partnership assets will affect only the remaining partners' personal assets.

A bonus to the departing partner may be paid if the fair value of the partnership assets is less than their carrying amount.

Green Solutions is a partnership owned by F. Sabac and S. Hilton. At January 1, 2014 the partner's capital accounts were: F. Sabac, $16,500 and S. Hilton $12,300. During 2014, Hilton contributed to the business equipment with a fair value of $5,600. Each partner withdrew $50,000 during the year and profit was $141,900. The partners share profit on a 2:1 ratio (Sabac:Hilton). Instructions a. Prepare the statement of partners' equity for the year ended December 31, 2014. b. Prepare a partial balance sheet, showing the partners' equity section.

A bonus to the remaining partners may be paid if the recorded assets are overvalued.

In a limited liability partnership, a partner has unlimited liability

Because of the unlimited liability of partners in a partnership, it is easier for a partnership to gain large amounts of investment capital.

The partners' profit and loss sharing ratio is 2:3:5, respectively. -If the D, E, and F Partnership is liquidated by selling the equipment for $125,000, and creditors are paid in full, what is the total amount of cash that Partner D will receive in the distribution of cash to partners?