Exam 19: Accounting for Partnerships

Which of the following statements is correct?

Escobar and Woods are partners who share profits and losses in the ratio of 60 and 40 percent, respectively. The partnership agreement provides that each will be paid a yearly salary of $18,000. The salaries were paid to the partners during 2019 and were charged to the partners' drawing accounts. The Income Summary account has a credit balance of $60,000 after revenue and expense accounts are closed at the end of the year. 1. What amount of net income or loss will be allocated to Escobar? 2. What amount of net income or loss will be allocated to Woods?

Which of the following is not a characteristic of a partnership?

Each general partner has--------- liability for the debts of a partnership.

Patsy Garrison owns and operates a bakery called Patsy's Pastries. Her postclosing trial balance on December 31, 2019, is provided below. Garrison plans to enter into a partnership with Erika Noreen, effective January 1, 2020. Profits and losses will be shared equally. Garrison will transfer all assets and liabilities of her store to the partnership, after revaluation. Noreen will invest cash equal to Garrison's investment after revaluation. The agreed values are: Accounts Receivable (net), $15,000; Merchandise Inventory, $54,000; and Store Equipment, $16,000. The partnership will operate under the name Baker's Delight. Record each partner's investment on page 1 of a general journal. Omit descriptions. Prepare a balance sheet for Baker's Delight just after the investments.

A partnership-------- occurs when the partnership's assets are sold, debts are paid off, and the remaining cash is distributed to the partners.

The salary and interest allowances in a partnership profit-sharing agreement can best be described as

Some partners, known as limited partners, may not be personally liable for the debts of the partnership.

Winchester, Wesson & Smith are dissolving their partnership. Their agreement allocates profits and losses 40:30:30 respectively. The ending capital balances are Winchester $45,000; Wesson $25,000 and Smith $13,000. After all assets are liquidated and liabilities paid, there is $12,000 in cash to be distributed. Smith's share of the excess cash is

Family partnerships enable family members to pool funds for investment purposes and are designed to minimize tax obligations on the transfer of property, business interests and investments.

It is customary for a partnership's income statement to show the division of net income or loss for the year between the partners.

Partnership net income of $45,000 is to be divided between two partners, Erin Kelly and Kathryn Morgan, according to the following arrangement: There will be salary allowances of $28,000 for Kelly and $20,000 for Morgan, with the remainder divided equally per their partnership agreement. How much of the net income will be distributed to Kelly and Morgan, respectively?

Which of the following statements is not correct?

To be legal, a partnership agreement must be in a written legal document.

If no other method of dividing net income or net losses is specified in the partnership agreement, it is divided

Mary Ann Mason operates a sole proprietorship business that sells craft supplies. On January 1, 2019, Mason has agreed to transfer her assets and liabilities to a partnership that will operate The Craft Company. Mason will own a one-third interest in the capital of the partnership. The agreed upon values of assets and liabilities to be transferred are as follows: Accounts receivable of $2,000 (of which approximately $200 is estimated to be uncollectible) Merchandise inventory, $4,000 Furniture and fixtures, $6,000 Accounts payable, $1,000 Record the receipt of the assets and liabilities by the partnership on page 1 of a general journal. Om the description.

If the withdrawing partner receives more cash than their capital account balances, the excess is debited to the capital accounts of the remaining partners according to their income and loss ratios specified in the partnership agreement.

Partnership net income of $68,000 is to be divided between two partners, Veronica Hansen and Cecilia Robinson, according to the following arrangement: There will be salary allowances of $25,000 for Hansen and $18,000 for Robinson, with the remainder divided 60% to Hansen and 40% to Robinson. How much of the net income will be distributed to Hansen and Robinson, respectively?

When the owner of a sole proprietorship accepts a partner, the assets of the proprietorship

Limited partners are only liable for their investment in the partnership and are, therefore, prohibited from having their names in the name of the partnership.