Exam 12: Accounting for Partnerships

The equity section of the balance sheet of a partnership can report the separate capital account balances of each partner.

Paco and Kate invested $99,000 and $126,000, respectively, in a partnership they began one year ago. Assuming the partnership earned $120,000 during the current year; compute the share of the net income each partner should receive under each of these independent assumptions.

Partners' withdrawals are credited to their separate withdrawals accounts.

Nee High and Low Jack are partners in an accounting firm and share net income and loss equally. High's beginning partnership capital balance for the current year is $285,000, and Jack's beginning partnership capital balance for the current year is $370,000. The partnership had net income of $250,000 for the year. High withdrew $90,000 during the year and Jack withdrew $100,000. What is Jack's return on equity?

When the current value of a partnership is greater than the recorded amounts of equity, the current partners usually require any new partner to pay a bonus for the privilege of joining.

The life of a partnership is ____________________ in duration.

A capital deficiency can arise from liquidation losses, excessive withdrawals before liquidation, or recurring losses in prior periods.

The BlueFin Partnership agrees to dissolve. The remaining cash balance after liquidating partnership assets and liabilities is $60,000. The final capital account balances are: Smith, $30,000; Nagy, $20,000; and Russ, $10,000. Prepare the journal entry to distribute the remaining cash to the partners.

Paul and Peggy's company is organized as a partnership. At the prior year-end, Paul's equity balance was $352,000 and Peggy's was $256,000. For the current year, partnership net income is $137,000 ($77,000 allocated to Paul and $60,000 allocated to Peggy); withdrawals are $87,000 ($45,000 for Paul and $42,000 for Peggy). Compute the total partnership return on equity and the individual partner return on equity ratios.

Jane, Castle, and Sean are partners who share income and loss in a 3:2:2 ratio. The partnership's capital balances are as follows: Jane, $332,000; Castle, $124,000; and Sean, $214,000. Sean decides to withdraw from the partnership, and the partners agree not to have the assets revalued upon Sean's retirement. Prepare journal entries to record Sean's withdrawal from the partnership under each of the following separate assumptions: Sean (a) sells his interest to Conner for $200,000 after Jane and Castle approve the entry of Conner as a partner; (b) is paid $214,000 in partnership cash for his equity; (c) is paid $205,000 in partnership cash for his equity; (d) is paid $220,000 in partnership cash for his equity.

The withdrawals account of each partner is closed to retained earnings at the end of the accounting period.

Brit, Franc, and Scot who share income and loss in a 2:2:1 ratio, plan to liquidate their partnership. At liquidation, their balance sheet appears as follows. Prepare journal entries for (a) the sale of land and equipment sold as a package for $500,000, (b) the allocation of the gain or loss, (c) the payment of the liabilities, and (d) the distribution of cash to the individual partners.

Admitting a partner by accepting assets is a personal transaction between one or more current partners and the new partner.

The withdrawals account of each partner is:

Partner return on equity is calculated as ___________________________.

Badger and Fox are forming a partnership. Badger invests a building that has a market value of $350,000; the partnership assumes responsibility for a $125,000 note secured by a mortgage on the property. Fox invests $100,000 in cash and equipment that has a market value of $75,000. For the partnership, the amounts recorded for total assets and for total capital account are:

A partnership designed to protect innocent partners from malpractice or negligence claims resulting from the acts of other partners is a ____________________________ partnership.

The statement of changes in partners' equity shows the beginning balance in retained earnings, plus investments, less withdrawals, the income or loss and the ending balance in retained earnings.

Basketball Products LP is organized as a limited partnership that sells sporting equipment. Information related to the two partner's capital balances is given below. Compute the partner return on equity for each limited partner. How would each partner evaluate the success of the partnership? What would you recommend the partners do with respect to additional investments or withdrawals?

Marquis and Bose agree to accept Sherman into their partnership. Sherman will contribute $25,000 in cash. Prepare the journal entry to record this transaction.