Exam 9: Partnerships: Formation and Operation

Jipsom and Klark were partners with capital account balances of $80,000 and $100,000, respectively. Looney directly paid $32,000 to Jipsom and $40,000 to Klark for 30% of their interests in the partnership. Jipsom and Klark shared income in the ratio of 2:3. They believed that revaluation of the partnership was appropriate when a new partner was admitted. Required: Prepare the journal entries to record the admission of Looney to the partnership.

What events cause the dissolution of a partnership?

How is accounting for a partnership different from accounting for a corporation?

Cherryhill and Hace had been partners for several years, and they decided to admit Quincy to the partnership. The accountant for the partnership believed that the dissolved partnership and the newly formed partnership were two separate entities. What method would the accountant have used for recording the admission of Quincy to the partnership?

A partnership began its first year of operations with the following capital balances: Young, Capital: $143,000 Eaton, Capital: $104,000 Thurman, Capital: $143,000 The Articles of Partnership stipulated that profits and losses be assigned in the following manner: Young was to be awarded an annual salary of $26,000 with $13,000 salary assigned to Thurman. Each partner was to be attributed with interest equal to 10% of the capital balance as of the first day of the year. The remainder was to be assigned on a 5:2:3 basis to Young, Eaton, and Thurman, respectively. Each partner withdrew $13,000 per year. Assume that the net loss for the first year of operations was $26,000 with net income of $52,000 in the second year. What was the balance in Thurman's Capital account at the end of the second year?

Peter, Roberts, and Dana have the following capital balances; $80,000, $100,000 and $60,000, respectively. The partners share profits and losses 20%, 40%, and 40% respectively. Roberts retires and is paid $160,000 based on an independent appraisal of the business. If the goodwill method is used, what is the capital balance of Peter?

Assume the partnership of Howell, Madrid, and Waldrop has been in existence for a number of years. Howell decides to withdraw from the partnership when the partners' capital balances are as follows: Partner Capital Balance Profit and Loss Ratio Howell 4 Madrid 15,000 3 Waldrop 25,000 2 An appraisal of the business and its net assets estimates the fair value to be $154,000. Land with a book value of $20,000 has a fair value of $35,000. Howell has agreed to receive $84,000 in exchange for her partnership interest. Prepare the journal entries for the dissolution of Howell's partnership interest, assuming the goodwill method is to be applied.

Max, Jones and Waters shared profits and losses 20%, 40%, and 40% respectively and their partnership capital balance is $10,000, $30,000 and $50,000 respectively. Max has decided to withdraw from the partnership. An appraisal of the business and its property estimates the fair value to be $200,000. Land with a book value of $30,000 has a fair value of $45,000. Max has agreed to receive $20,000 in exchange for her partnership interest after revaluation. At what amount should land be recorded on the partnership books?

The partners of Apple, Bere, and Carroll LLP share net income and losses in a 5:3:2 ratio, respectively. The capital account balances on January 1, 2013, were as follows: Apple, capital \ 25,000 Bere, capital 75,000 Carroll, capital 50,000 Total partners' capital \ 150,000 The carrying amounts of the assets and liabilities of the partnership are the same as their current fair values. Dorr will be admitted to the partnership with a 20% capital interest and a 20% share of net income and losses in exchange for a cash investment. The amount of cash that Dorr should invest in the partnership is:

Norr and Caylor established a partnership on January 1, 2012. Norr invested cash of $100,000 and Caylor invested $30,000 in cash and equipment with a book value of $40,000 and fair value of $50,000. For both partners, the beginning capital balance was to equal the initial investment. Norr and Caylor agreed to the following procedure for sharing profits and losses: - 12% interest on the yearly beginning capital balance - $10 per hour of work that can be billed to the partnership's clients - the remainder divided in a 3:2 ratio The Articles of Partnership specified that each partner should withdraw no more than $1,000 per month. For 2012, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400 billable hours. In 2013, the partnership's income was $24,000, and Norr and Caylor worked 800 and 1,200 billable hours respectively. Each partner withdrew $1,000 per month throughout 2012 and 2013. Determine the balance in both capital accounts at the end of 2012.

Assume the partnership of Dean, Hardin, and Roth has been in existence for a number of years. Dean decides to withdraw from the partnership when the partners' capital balances are as follows: Capital Profit and Partner Balance Loss Ratio Dean \ 60,000 40\% Hardin 15,000 30\% Roth 25,000 20\% An appraisal of the business and its property estimates the fair value to be $100,000. Dean has agreed to receive $64,000 in exchange for his partnership interest. Prepare the journal entry for the payment to Dean in the dissolution of his partnership interest, assuming the bonus method is to be applied.

Donald, Anne, and Todd have the following capital balances; $40,000, $50,000 and $30,000 respectively. The partners share profits and losses 20%, 40%, and 40% respectively. Anne retires and is paid $80,000 based on the terms of the original partnership agreement. If the bonus method is used, what is the capital of the remaining partners?

Brown and Green are forming a business as partners. If they do not create a formal written partnership agreement, what risks are they exposing themselves to?

Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Cleary's total share of net income for 2012?

The ABCD Partnership has the following balance sheet at January 1, 2012, prior to the admission of new partner, Eden. Eden acquired a 20% interest in the partnership by contributing a total of $71,500 directly to the other four partners. Goodwill is to be recorded. Profits and losses have previously been split according to the following percentages: Adams, 15%; Barnes, 35%; Cordas, 30%; and Davis, 20%. After Eden made his investment, what were the individual capital balances?

Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Wasser's capital balance at the end of 2013?

Assume the partnership of Howell, Madrid, and Waldrop has been in existence for a number of years. Howell decides to withdraw from the partnership when the partners' capital balances are as follows: Partner Capital Balance Profit and Loss Ratio Howell 4 Madrid 15,000 3 Waldrop 25,000 2 An appraisal of the business and its net assets estimates the fair value to be $154,000. Land with a book value of $20,000 has a fair value of $35,000. Howell has agreed to receive $84,000 in exchange for her partnership interest. What are the remaining partners' capital balances after Howell's interest is dissolved, assuming the goodwill method is applied?

P, L, and O are partners with capital balances of $50,000, $30,000 and $20,000 and who share in the profit and loss of the PLO partnership 30%, 20%, and 50%, respectively, when they agree to admit C for a 20% interest. C contributes $38,000 to the partnership and the bonus method is used. What amount will be credited for C's beginning capital balance?

Cleary, Wasser, and Nolan formed a partnership on January 1, 2012, with investments of $100,000, $150,000, and $200,000, respectively. For division of income, they agreed to (1) interest of 10% of the beginning capital balance each year, (2) annual compensation of $10,000 to Wasser, and (3) sharing the remainder of the income or loss in a ratio of 20% for Cleary, and 40% each for Wasser and Nolan. Net income was $150,000 in 2012 and $180,000 in 2013. Each partner withdrew $1,000 for personal use every month during 2012 and 2013. What was Nolan's total share of net income for 2012?

Partnerships have alternative legal forms including all of the following except: