Exam 14: Partnerships: Formation and Operation

Jipsom and Klark were partners with capital account balances of $80,000 and $100,000,respectively.Looney 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.

REFERENCE: Ref.14_01 Cleary,Wasser,and Nolan formed a partnership on January 1,2007,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 2007 and $180,000 in 2008.Each partner withdrew $1,000 for personal use every month during 2007 and 2008. -What was Nolan's share of income for 2007?

REFERENCE: Ref.14_05 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 goodwill method is used,what is the capital of the remaining partners?

REFERENCE: Ref.14_01 Cleary,Wasser,and Nolan formed a partnership on January 1,2007,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 2007 and $180,000 in 2008.Each partner withdrew $1,000 for personal use every month during 2007 and 2008. -What is Cleary's capital account balance at the end of 2008?

REFERENCE: Ref 14_06 Norr and Caylor established a partnership on January 1,2007.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 2007,the partnership's income was $70,000.Norr had 1,000 billable hours,and Caylor worked 1,400 billable hours.In 2008,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 2007 and 2008. -Determine the amount of income allocated to each partner for 2007.

By what methods can a person gain admittance to a partnership?

REFERENCE: Ref.14_01 Cleary,Wasser,and Nolan formed a partnership on January 1,2007,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 2007 and $180,000 in 2008.Each partner withdrew $1,000 for personal use every month during 2007 and 2008. -What was Wasser's capital balance at the end of 2008?

REFERENCE: Ref.14_01 Cleary,Wasser,and Nolan formed a partnership on January 1,2007,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 2007 and $180,000 in 2008.Each partner withdrew $1,000 for personal use every month during 2007 and 2008. -What was Cleary's share of income for 2008?

REFERENCE: Ref.14-10 On January 1,2008,Lamb and Mona LLP admitted Noris to a 20% interest in net assets for an investment of $50,000 cash.Prior to the admission of Noris,Lamb and Mona had net assets of $100,000 and an income-sharing ratio of Lamb 25%,Mona 75%.After the admission of Noris,the partnership contract included the following provisions: Salary of $40,000 a year to Noris. Remaining net income in ratio Lamb 20%,Mona 60%,Noris 20% During the fiscal year ended December 31,2008,the partnership had income of $90,000 prior to recognition of salary to Noris. -Record the journal entry for the admission of Noris.Goodwill is not to be recorded.

REFERENCE: Ref.14_02 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,respectively. Each partner was allowed to withdraw up to $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.Assume further that each partner withdrew the maximum amount from the business each year. -What was the balance in Thurman's Capital account at the end of the second year?

REFERENCE: Ref.14_02 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,respectively. Each partner was allowed to withdraw up to $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.Assume further that each partner withdrew the maximum amount from the business each year. -What was Young's share of income or loss for the second year?

Why are the terms of the Articles of Partnership important to partners?

REFERENCE: Ref.14_02 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,respectively. Each partner was allowed to withdraw up to $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.Assume further that each partner withdrew the maximum amount from the business each year. -What was the balance in Thurman's Capital account at the end of the first year?

When the hybrid method is used to record the withdrawal of a partner,the partnership

The advantages of the partnership form of business organization,compared to corporations,include

The appropriate format of the January 31,2008 closing entry for John & Hope Limited Liability Partnership,whose two partners had withdrawn their salaries from the partnership during January is

REFERENCE: Ref.14_07 -Eden contributes $49,000 into the partnership for a 25% interest.The four original partners share profits and losses equally.Using the bonus method,determine the balances for each of the five partners after Eden joins the partnership.

REFERENCE: Ref.14_07 -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?

REFERENCE: Ref.14-10 On January 1,2008,Lamb and Mona LLP admitted Noris to a 20% interest in net assets for an investment of $50,000 cash.Prior to the admission of Noris,Lamb and Mona had net assets of $100,000 and an income-sharing ratio of Lamb 25%,Mona 75%.After the admission of Noris,the partnership contract included the following provisions: Salary of $40,000 a year to Noris. Remaining net income in ratio Lamb 20%,Mona 60%,Noris 20% During the fiscal year ended December 31,2008,the partnership had income of $90,000 prior to recognition of salary to Noris. -Record the journal entry to allocate the salary of Noris.

REFERENCE: Ref.14_05 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. -What is the total partnership capital after Anne retires receiving $80,000 and using the bonus method?