Exam 14: Partnerships: Formation and Operation

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: 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?

What is the dissolution of a partnership?

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. Prepare the journal entry for the payment to Dean in the dissolution of his partnership interest, assuming the bonus method is to be applied.

The ABCD Partnership has the following balance sheet at January 1, 2010, 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. No 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?

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: 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.

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?

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?

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, 2011, 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:

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 an independent appraisal of the business. If the goodwill method is used, what is the capital of the remaining partners?

The partnership of Clapton, Seidel, and Thomas was insolvent and will be unable to pay $30,000 in liabilities currently due. What recourse was available to the partnership's creditors?

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 Dana?

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. If C is to contribute an amount equal to his book value share of the new partnership, how much should C contribute?

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, 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 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011. What was Cleary's total share of net income for 2010?

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

Norr and Caylor established a partnership on January 1, 2010. 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 2010, the partnership's income was $70,000. Norr had 1,000 billable hours, and Caylor worked 1,400 billable hours. In 2011, 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 2010 and 2011. Determine the amount of net income allocated to each partner for 2010.

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, 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 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011. What was the amount of interest attributed to Wasser for 2011?

Cleary, Wasser, and Nolan formed a partnership on January 1, 2010, 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 2010 and $180,000 in 2011. Each partner withdrew $1,000 for personal use every month during 2010 and 2011. What was Nolan's capital balance at the end of 2011?

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

A partnership began its first year of operations with the following capital balances: 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 Young's total share of net income for the second year?

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