Exam 12: Partnerships

Nancy and Betty enter into a partnership agreement whereby they undertake to share profits according to the following rules: (a)Nancy and Betty will receive a salary of $11,500 and $23,500 respectively. (b)The next allocation is based on 20% of the partner's capital balances. (c)Any remaining profit or loss is to be borne completely by Betty. The partnership's net loss for the first year is $50,000. Nancy's capital balance is $90,000 and Betty's capital balance is $10,000 as at the end of the year. Calculate the share of profit (loss)to be borne by Nancy.

When a partner dies, the partnership ceases to exist, and the deceased partner's estate will have ownership of the partner's equity in the partnership.

Upon liquidation of a partnership, gains and losses on the sale of assets are divided according to the capital balances.

Aries and Eros start a partnership firm with capital contributions of $40,000 and $60,000, respectively. In course of the year, Aries withdraws $5,000 from the business in order to meet his personal expenses. Which of the following is the correct journal entry to close the relevant Withdrawals account at the end of the year?

Admission of a new partner, by contributing directly to the partnership, increases both assets and liabilities by the same amount.

Which of the following is true when a new partner is admitted by purchasing an existing partner's interest?

The process of going out of business by selling the entity's assets, paying its liabilities, and distributing any remaining cash to the owners based on their equity balances is known as liquidation.

When a partner withdraws his interest in the partnership, both assets and equity will decrease.

Like a sole proprietorship statement of owner's equity, the statement of partners' equity will show all the partners' capital accounts as one account.

Irrespective of the original profit-and-loss-sharing ratio, the bonus received by existing partners-by admitting a new partner-will be allocated equally.

Which of the following is true of a limited liability company?

Admission of a new partner to a partnership, by purchasing an existing partner's interests, simply transfers capital from one partner's account to another.

Aries and Eros start a partnership firm with capital contributions of $40,000 and $60,000, respectively. In course of the year, Aries withdraws $5,000 from the business in order to meet his personal expenses. Which of the following is the correct journal entry to record the above withdrawal?

Dana and Emile allocate 2/3 of the profits and losses to Dana and 1/3 to Emile. The net income of the firm is $30,000. The journal entry to close the Income Summary will include:

The balance sheet of Ryan and Peter firm as on December 31, 2014, is given below. Ryan and Peter share profits in the ratio 3:2. They have decided to liquidate the partnership with immediate effect. The furniture and the equipment were sold at a cumulative loss of $5,000. The accounts receivable were duly received in cash and the other assets were written off as worthless. The accounts payable and other liabilities were paid off at book value. The firm's accountant distributed the remaining cash between Ryan and Peter equally. However, Peter initiated a lawsuit claiming that his share was greater than Ryan's. How much should Peter have received?

When a partner withdraws his interest for cash, the liabilities in the balance sheet remains unchanged.

Keith and Jim formed a partnership business. The partnership incurs a net loss of $6,000 and the partners agreed to share the losses equally. The entry to close the net loss will:

Whenever a partner mix in a partnership changes, the old partnership ceases to exist and a new partnership begins.

Gary, Peter, and Chris are partners. Their capital balances are, $25,000; $40,000; and $31,000, respectively. As per the partnership agreement, Gary gets a profit share of 2/9; Peter has 4/9; and Chris has 3/9. Gary withdraws from the partnership by receiving $25,000. What will be the impact of this transaction on the journal entries?

David, Chris and John started off a partnership firm on July 31, 2014. They decided to share profits equally, but also inserted a clause in the partnership agreement whereby any loss suffered would be borne in the ratio 3:2:1. For the year ended December 31, 2014, the firm earned a net income of $45,000. However, for the year ended December 31, 2015, the firm incurred a loss of $60,000. Assuming that John had an initial capital contribution of $40,000 and made no further withdrawals, what is the balance of John's Capital account as of December 31, 2015? (Assume that none of the partners made any further contributions to their capital accounts.)