Exam 14: Partnerships: Formation and Operations

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 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 the balance in Thurman's Capital account at the end of the second year?

The ABCD Partnership has the following balance sheet at January 1, 2010, prior to the admission of new partner, Eden. Cash and current assets \ 39,000 Liabilities \ 52,000 Land 234,000 Adams, capital 26,000 Building and equipment 130,000 Barnes, capital 52,000 Cordas, capital 117,000 Davis, capital 156,000 Total \ 403,000 Total \ 403,000 -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?

Withdrawals from the partnership capital accounts are typically not used

The capital account balances for Donald & Hanes LLP on January 1, 2011, were as follows: Donald, capital \ 200,000 Hanes, capital 100,000 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?

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 Wasser's capital balance at the end of 2010?

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

Max, Jones and Waters shared profits and losses 20%, 40%, and 40% respectively and their partnership capital balance is $10,000, $30,000 and $50,000 respectively. Max has decided to withdraw from the partnership. An appraisal of the business and its property estimates the fair value to be $200,000. Land with a book value of $30,000 has a fair value of $45,000. Max has agreed to receive $20,000 in exchange for her partnership interest after revaluation. At what amount should land be recorded on the partnership books?

The capital account balances for Donald & Hanes LLP on January 1, 2011, were as follows: Donald, capital \ 200,000 Hanes, capital 100,000 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 new total balance of the partnership accounts?

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: Partner Capital Balance Profit and Loss Ratio Howell \ 60,000 4 Madrid 15,000 3 Waldrop 25,000 2 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?

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?

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 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 Eaton's total share of net income for the second year?

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

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: Answer: Partner Capital Balance Profit and Loss Ratio Dean \ 60,000 40\% Hardin 15,000 30\% Roth 25,000 20\% 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?

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. -Jerry, a partner in the JSK partnership, begins the year on January 1, 2011 with a capital balance of $20,000. The JSK partnership agreement states that Jerry receives 6% interest on this weighted average capital balance. $\bullet$ On March 1, 2011, when the partnership tax return for 2010 was completed, Jerry's capital account was credited for his share of 2010 profit of $120,000. $\bullet$ Jerry withdrew this amount quarterly, beginning April 1. $\bullet$ On September 1, Jerry's capital account was credited with a special bonus of $60,000 for business he brought to the partnership. What amount of interest will be attributed to Jerry for year 2011 that will go toward his profit distribution for the year? (Use a 360-day year for calculations)

The ABCD Partnership has the following balance sheet at January 1, 2010, prior to the admission of new partner, Eden. Cash and current assets \ 39,000 Liabilities \ 52,000 Land 234,000 Adams, capital 26,000 Building and equipment 130,000 Barnes, capital 52,000 Cordas, capital 117,000 Davis, capital 156,000 Total \ 403,000 Total \ 403,000 -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?

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

The capital account balances for Donald & Hanes LLP on January 1, 2011, were as follows: Donald, capital \ 200,000 Hanes, capital 100,000 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 Donald's capital account after the new partnership is created?

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 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 Thurman's total share of net loss for the first year?

When Danny withdrew from John, Daniel, Harry, and Danny, LLP, he was paid $80,000, although his capital account balance was only $60,000. The four partners shared net income and losses equally. The journal entry to record the effect on John's capital due to Danny's withdrawal would include :

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. -Jell and Dell were partners with capital balances of $600 and $800 and an income sharing ratio of 2:3. They admitted Zell to a 30% interest in the partnership, and the total amount of goodwill credited to the original partners was $700. What amount did Zell contribute to the business?