Exam 11: Partnerships

Collins and Farina are forming a partnership. Collins is investing a building that has a fair market value of $70,000. However, the building is subject to a $36,000 mortgage. Farina is investing $20,000 cash. The amount to be credited to Collins' capital account is:

In closing the partnership accounts at the end of a period, the partners' capital accounts are credited for their share of the net loss or debited for their share of the profit.

Assets invested by a partner into a partnership remain the property of the individual partner.

A partnership agreement is:

Nguyen invested $8,000 and Hansen invested $12,000 in a partnership. They agreed to share incomes and losses by allowing a $9,000 per year salary allowance to Nguyen and a $12,000 per year salary allowance to Hansen, plus interest on the partners'investments at 10%, with the balance to be shared equally. Under this agreement, the shares of the partners with a $51,000 profit are:

Partnership accounting:

Which of the following is true about a partnership?

If a partner is unable to cover a deficiency and the other partners absorb the deficiency, then that partner is thus relieved of all liability.

A capital deficiency can arise from liquidation losses, excessive withdrawals, or recurring losses in prior periods.

Partners can transfer both assets and liabilities to a partnership.

When a partner leaves a partnership, the partnership ends, but the business can still continue to operate.

When a partnership is liquidated:

Chen and Wright are forming a partnership. Chen will invest a building that currently is being used by another business owned by Chen. The building has a fair market value of$65,000. Also, the partnership will assume responsibility for a $15,000 note secured by a mortgage on the building. Wright will invest $20,000 cash. On the books of thepartnership, the amount to be recorded for the building and credit to Chen's capital account are:

Jack and Jill are business partners in JJ Sports. Their partnership agreement states thatthe partners will share income in a 3:2 ratio Jack:Jill). For the year ended December 31, 2016, the partnership earned $200,000.During 2016, Jack withdrew $40,000 cash from the business and Jill withdrew $30,000 cash. How much income would be allocated to Jill?

When the current market value of a partnership is greater than the recorded amounts of equity, the partners usually require the new partner to pay a bonus for joining.

A partner can withdraw from a partnership by:

In the absence of a partnership agreement, the law says that income of a partnership will be shared equally by the partners.