Exam 12: Accounting for Partnerships

If the partners agree on a formula to share income and say nothing about losses, then the losses are shared equally.

Partnership accounting:

What are the ways that a new partner can be admitted to an existing partnership? Explain how to account for the admission of the new partner under each of these circumstances.

A _____________________ is an unincorporated association of two or more people to pursue a business for profit as co-owners.

___________________________ means that partners can commit or bind the partnership to any contract within the scope of the partnership business.

A partnership has an unlimited life.

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 the building and for Badger's Capital account are:

Benson is a partner in B&D Company. Benson's share of the partnership income is $18,600 and her average partnership equity is $155,000. Her partner return on equity equals 8.33. $18,600/$155,000 = 12%

Armstrong withdraws from the FAP Partnership. The remaining partners agree to buy out her share for her capital balance of $35,000. Prepare the journal entry to record the withdrawal from the partnership.

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 Badger's Capital account and for Fox's Capital account are:

When a partner leaves a partnership, the present partnership ends, but the business can still continue to operate.

Jane and Castle are partners and share equally in income or loss. Jane's current capital balance is $140,000 and Castle's is $130,000. Jane and Castle agree to accept Sean with a 30% interest in the partnership. Sean invests $108,000 in the partnership. The amount credited to Sean's capital account is:

Smith, West, and Krug form a partnership. Smith contributes $180,000, West contributes $150,000, and Krug contributes $270,000. Their partnership agreement calls for a 5% interest allowance on the partner's capital balances with the remaining income or loss to be allocated equally. If the partnership reports income of $174,000 for its first year, what amount of income is credited to Krug's capital account?

Partners in a partnership are taxed on ____________________, not on their withdrawals.

On May 1, Fine and Max formed a partnership. Fine contributed cash of $90,000 and equipment valued at $152,000. Max contributed land valued at $120,000 and a building valued at $250,000. The partnership also assumed responsibility for Max's $110,000 long-term note payable associated with the land and building. The partners agreed to share income as follows: Fine is to receive a salary allowance of $38,000, both are to receive an annual interest allowance of 8% of their beginning-year capital investments, and any remaining income or loss is to be shared equally. During the year, Fine withdrew $40,000 and Max withdrew $42,000 cash. After the adjusting and closing entries are made to the revenue and expense accounts at the end of the year, the Income Summary account had a credit balance of $140,000. Prepare the journal entries to record (a) the partners' initial capital investments, (b) their cash withdrawals, and (c) closing of both the Withdrawals and Income Summary accounts.

A partnership designed to protect innocent partners from malpractice or negligence claims resulting from acts of another partner is a:

Salary allowances are reported as salaries expense on a partnership income statement.

Groh and Jackson are partners. Groh's capital balance in the partnership is $64,000, and Jackson's capital balance $61,000. Groh and Jackson have agreed to share equally in income or loss. Groh and Jackson agree to accept Block with a 25% interest. Block will invest $35,000 in the partnership. The bonus that is granted to Block equals:

A partnership cannot use salary allowances or interest allowances to allocate income and losses to the partners because these items are not reported on the partnership income statement.

Mutual agency means