Exam 14: Partnerships: Formation and Operation

REFERENCE: Ref.14_03 The capital account balances for Donald & Hanes LLP on January 1,2008,were as follows: Donald and Hanes shared net income and losses in the ratio of 3:2,respectively.The partners agreed to admit May to the partnership with a 35% interest in partnership capital and net income.May invested $100,000 cash,and no goodwill was recognized. -What is the balance of Hane's capital account after the new partnership is created?

Which of the following statements is correct regarding the admission of a new partner?

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 1,2008,were as follows: 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:

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 Thurman's share of income or loss for the second year?

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 capital balance at the end of 2008?

REFERENCE: Ref.14_08 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: 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. -What are the remaining partners' capital balances after Dean's interest is dissolved,assuming the bonus method is applied?

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 2007?

REFERENCE: Ref.14_03 The capital account balances for Donald & Hanes LLP on January 1,2008,were as follows: Donald and Hanes shared net income and losses in the ratio of 3:2,respectively.The partners agreed to admit May to the partnership with a 35% interest in partnership capital and net income.May invested $100,000 cash,and no goodwill was recognized. -What is the balance of May's capital account after the new partnership is created?

Withdrawals from the partnership accounts are typically not used

REFERENCE: Ref.14_07 -Eden contributed $124,000 in cash to the business to receive a 20% interest in the partnership.Goodwill was to be recorded.The four original partners shared all profits and losses equally.After Eden made his investment,what were the individual capital balances?

REFERENCE: Ref.14_04 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 the terms of the original partnership agreement.If the goodwill method is used,what is the capital balance of Peter?

REFERENCE: Ref.14_04 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 the terms of the original partnership agreement.If the goodwill method is used,what is the capital balance of Dana?

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 Eaton's Capital account at the end of the first year?

What theoretical argument could be made against the recognition of goodwill when there is a change in the ownership of 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 share of income for 2007?

Which of the following type of organization is classified as a partnership,or similar to a partnership,for tax purposes? (I) )Limited Liability Company (II) )Limited Liability Partnership (III. )Subchapter S Corporation

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

The partnership contract for Hanes and Jones LLP provides that Hanes is to receive a bonus of 20% of net income (after the bonus)and that the remaining net income is to be divided equally.If the partnership income before the bonus for the year is $57,600,Hanes' share of this pre-bonus income is:

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 Eaton's share of income or loss for the first year?